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TMI Blog2018 (12) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... easonableness of the above disallowance and accordingly, the additional disallowance was not warranted. 1.3 The learned Commissioner of Income Tax (Appeals) - 1, Pune, failed to appreciate that the investment in the shares of the group companies was made long back and there was no expenditure incurred in earning dividend from those companies. The learned Commissioner of Income Tax (Appeals) - 1, Pune, further failed to appreciate that the above investments in the group concerns were strategic investments which did not require regular monitoring and therefore, there was no expenditure incurred to earn any income from these investments. 1.4 Without prejudice to ground nos.1 & 3 above, the learned Commissioner of Income Tax (Appeals) - 1, Pune, erred in not directing the Assessing Officer to exclude the investments which had not actually given any tax free dividend income during the relevant previous year for the purposes of working out disallowance under Rule 8D(iii). 1.5 The learned Commissioner of Income Tax (Appeals) - 1, Pune, failed to appreciate the fact that on the basis of the similar facts and circumstances in case of the Appellant Company in the context of disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st disallowance made under section 14A of the Act r.w.s. 8D of the Income Tax Rules, 1962 (in short 'the Rules'). 4. Briefly, in the facts of the case, case of assessee was picked up for scrutiny. The Assessing Officer noted that the assessee had earned dividend income of Rs. 14,27,08,716/-, which was claimed as exempt under section 10(35) of the Act. The Assessing Officer thus, recorded satisfaction as to why the provisions of section 14A of the Act should not be applied after taking note of the fact that the assessee had disallowed sum of Rs. 39,76,231/-. The assessee submitted detailed working of disallowance made suo motu. It may be noted that no disallowance has been made under Rule 8D(2)(ii) of the Income Tax Rules, 1962 (in short 'the Rules') as the assessee claimed that no interest cost was incurred in relation to exempt dividend income. The assessee also explained that no separate staff was employed for the management of investments and also claimed that no additional / separate administration cost was required for earning such income. The Assessing Officer applying provisions of rule 8D(2)(iii) of the Rules computed the disallowance at Rs. 61,34,350/-. Since the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l given by DSIR. The assessee filed the requisite details. The Assessing Officer noted that DSIR had not approved expenditure of Rs. 18.42 lakhs out of total expenditure claimed by assessee company. The assessee was thus, show caused as to why proportionate deduction under section 35(2AB) of the Act should not be disallowed i.e. to the extent of amount not approved by DSIR. In reply, the assessee claimed that it had not received any clarification from DSIR and the reasons for rejecting approval to a part of expenses incurred, was also not clear. The assessee also pointed out that there was no provision in the Income Tax Act, which provided for such approval for yearly expenditure by DSIR. The assessee stressed that once the facility is approved by DSIR, no further reference is to be made to DSIR for the purpose of claiming deduction under section 35(2AB) of the Act. The Assessing Officer rejected the plea of assessee and disallowed proportionate weighted deduction claimed under section 35(2AB) of the Act at Rs. 18,42,000/-. 12. The CIT(A) upheld the order of Assessing Officer. 13. The assessee is in appeal against the said disallowance. 14. The learned Authorized Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions and the allowability of expenditure vary. Sub-section (1) to section 35 of the Act deals with expenditure on scientific research, not being in the nature of capital expenditure, is to be allowed to research association, university, college or other institution; for which an application in the prescribed form and manner is to be made to the Central Government for the purpose of grant of approval or continuation thereto. Before granting the approval, the prescribed authority has to satisfy itself about the genuineness of activities and make enquiries in this regard. Under sub-section (2B) to section 35 of the Act, a company engaged in the specified business as laid there on, if it incurs expenditure on scientific research or in-house Research & Development facility also needs to be approved by the prescribed authority, is entitled to deduction, provided the same is approved by the prescribed authority. 39. Now, coming to sub-section (2AA) to section 35 of the Act, it talks about granting of approval by the prescribed authority but the approval to the expenditure being incurred is missing under the said section. Similar is the position in sub-section (2A). Further in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be audited annually. Clause (b) to sub-rule (7A) has been substituted by IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016, under which the prescribed authority has to furnish electronically its report (i) in relation to approval of in-house R & D facility in part A of form No.3CL and (ii) quantifying the expenditure incurred on in-house R & D facility by the company during the previous year and eligible for weighted deduction under sub-section 2AB of section 35 of the Act in part B of form No.3CL. In other words the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016. Prior to this amendment, no such power was with DSIR i.e. after approval of facility. 41. Under the amended provisions, beside maintaining separate accounts of R & D facility, copy of audited accounts have to be submitted to the prescribed authority. These amendments to rules 6 and 7a are w.e.f. 01.07.2016 i.e. under the amended rules, the prescribed authority as in part A give approval of the facility and in part B quantify the expenditure eligible for deduction under section 35(2AB) of the Act. 42. The issue which is raised before us relates to pre-ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R&D facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under s. 35(2AB) of the Act by the assessee." 44. The Hon‟ble High Court of Delhi in CIT Vs. Sandan Vikas (India) Ltd. (2011) 335 ITR 117 (Del) on similar issue of weighted deduction under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by Rs. 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed." 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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