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TMI Blog2017 (4) TMI 1183X X X X Extracts X X X X X X X X Extracts X X X X ..... t established by the assessee and the income derived from such enterprise of the assessee, it would have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression `derived from’ could have no application to the case where the provisions of section 80-IA got attracted. - Decided in favour of assessee . Disallowance of deduction u/s. 35(2AB) - expenditure on scientific research on in-house research and development facilities - AO rejected the claim of deduction for the period prior to 01-04-2008 to 31-03-2010 on the ground that in the Form No. 3CM dated 22/10/2008 giving approval u/s. 35(2AB) it was specifically mentioned that the Research and Development facilities was approved for the purpose of section 35(2AB) with effect from 01- 04-2008 to 31-03-2010 - Held that:- We have perused the paper book furnished by the assessee and find that the assessee claim that application for approval of in-house research and development was made on 22-12-2006. In order to verify the same we have gone through the pages of paper book and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firming the action of AO in charging interest u/s. 234B of the Income Tax Act, 1961. 5. The Learned Commissioner of Income Tax (Appeals) erred in fact and in law in confirming the action of AO in charging interest u/s. 234D of the Income Tax Act, 1961. 6. The Learned Commissioner of Income Tax (Appeals) erred in fact and in law in initiating penalty proceedings u/s. 271(1)(c). Ground No. 1 (Disallowance of ₹ 3,19,784/-) 3. During the course of appellate proceedings, the assessing officer noticed that assessee had received dividend income of ₹ 20,43,722/- and long term capital gain on the sale of equity shares which was exempt under the IT. Act. The assessee was asked to show cause as why expenditure in respect of exempt income claimed should not be calculated as per new provisions of sec. 14A(2) r.w. Rule 8D. The assessee has objected to such disallowance on the ground that there has been substantial accruals which were utilized while making the investment. The assessing officer could not satisfy with the explanation of the assessee and disallowed an amount of ₹ 3,19,784/- after working out the disallowance as per rule 8D of the Income Tax Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - expenses for the purpose of section 14A(2). Further, it cannot be accepted that expenditure of administrative or managerial nature was not at all incurred to earn tax free income from investment in tax free income yielding securities. Investment decisions are strategic decisions requiring time and effort on part of top management and other employees. Attribution of part of employee costs towards investment activities is therefore justified. Once incurring of expenditure towards managerial and administrative purposes for earning investment income cannot be ruled out, it is a case falling under sub-section (2) of section 14A, i.e. appellant's claim that no expenditure was incurred for earning tax free income is incorrect. The expenditure attributable to earning of tax free income is then to be determined as per Rule-80, which would also include attribution of interest expenditure. Disallowance U/S.14A r.w. Rule 8D of ₹ 3,19,784/- is confirmed. 4. During the course of appellate proceedings, the ld. counsel contended that the assessing officer has incorrectly invoked the provision of section 14A on the presumption that the assessee would have utilized interest bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Against the order of the Tribunal, the Revenue preferred the appeal before the Hon ble Gujarat High Court and the above question of law was framed. The Hon ble Gujarat High Court while holding in favour of assessee, relied on a host of judgments including ACIT, Bharuch Circle, Bharuch vs. Pragati Glass Works Pvt Ltd decided on 25.09.2012 and CIT vs. Shah Alloys Ltd, decided on 22.11.2011 in Tax Appeal No.2092 of 2010. The Hon ble Gujarat High Court further relied on the judgment of Calcutta High Court in the case of CIT vs. Kanoria Chemicals Industreis Ltd, [2013] 35 taxmann.com 566 (Calcutta), wherein the Court has held as under:- It is price at which assessee transferred electricity generated by it eligible business to its other business which would be considered for purpose of computation of profits and gains of eligible business in terms of section 80-IA(8) and not lesser price at which surplus electricity was sold to Electricity Board. 17.3 Relying on all these judgments, by detailed observations, the Hon ble Gujarat High Court upheld the claim of the assessee and dismissed the Revenue s ground in this behalf by following observations:- 11. We have conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of section 35(2AB), i.e. Department of Scientific . Industrial Research (DSIR) on 26.6.2008, i.e. after the financial year pertaining to A.Y.2008-09 was already over. The DSIR granted approval on 22.10.2008 specifically mentioning as under in its approval letter:- The Research Development facility is approved for the purpose of section 35(2AB) from 1.4.2008 to 31.3.2010, subject to conditions underlined therein. In the case of Claris Life sciences Ltd. (2008) 174 Taxman 113 (Gujarat) relied upon by the appellant, Hon'ble Gujarat High Court decided the matter in favour of the assessee as per para-8 of the decision on the ground that the approval was granted during the previous year relevant to assessment year in question in that case. Based on this fact, the High Court had held that assessee was entitled to claim weighted deduction u/s.35(2AB) in respect of entire expenditure incurred during the previous year. In appellant's case, facts are different in as much as the approval was received in F.Y.2008-09 i.e. after F.Y.2007-08 was already over and even the application seeking approval was made in F. Y. 2008-09. Decision in the case of Claris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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