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TMI Blog2020 (12) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... to appreciate the aforesaid order, as the order no where states that the revenue expenses incurred out of the grant would not be allowed as deduction under Section 37 - nature of the expenditure has to be seen and not the nature of receipt and purpose for which such expenditure is made is a relevant criteria. The expenditure was incurred by the assessee for research and development for manufacture of aircrafts, which were to be sold. Thus, the expenditure was incurred for the purpose of business of the assessee and the same ought to have been allowed under Section 37 instead of Section 35(1)(iv) Disallowance u/s 14A - Non recording of satisfaction by AO - HELD THAT:- Sub-Section (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules prescribe a formula for determination of expenditure incurred in relation to income, which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. The sine qua non for invocation of power under Section 14A of the Act read with Rule 8D of the Rules is the recording of satisfaction by the Assessing Authority that having regard to the accounts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals briefly stated are that the assessee is public sector undertaking of Government of India and is engaged in the business of design, development, manufacture and maintenance of aircrafts and avionic systems. The assessee caters to the requirement of defence establishment in India. The assessee for the purposes of manufacture of aircrafts and avionic systems undertakes various research and development activities in its Research and Development Centers. In the Assessment Year 2009-10, the assessee received grants to the tune of ₹ 570,61,55,000/- from Government of India for conducting defence related research. The assessee also received dividend income of ₹ 32,77,838/- and ₹ 29,40,000/- from BAe HAL Software Limited and Indo-Russian Aviation Ltd. Respectively. The assessee filed the return of income for the Assessment Year 2009-10 and claimed the grant as capital receipt. Thus, not forming part of the income chargeable to tax. The Assessing Officer by an order dated 29.11.2011 passed an order by which he reduced an amount of ₹ 570,61,55,000/- from the deductible expenditure on the ground that the same was capital in nature. The Assessing Officer also made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a deduction since, it is incurred on scientific research and the expression 'scientific research' in Section 43(4) of the Act means any activity for extension of knowledge, in the field of natural or applied science including agriculture, animal husbandry or fisheries. It is also pointed out that the tribunal has recorded a finding of fact that the expenses have been incurred by the assessee towards scientific research and the aforesaid finding has not been challenged by the revenue. The only grievance of the revenue is that the claim of the assessee under Section 35(1)(iv) of the Act was not put forth in the return of income and is not allowable. It is pointed out that there was a claim in the return of income for the aforesaid amount under Section 37 of the Act and only when the same was not accepted by the Assessing Officer, the assessee made an alternate claim under Section 35(1)(iv) of the Act before the Commissioner of Income Tax (Appeals) and alternate claim can be considered by appellate Authority. In support of aforesaid submissions, reliance has been placed on decisions in 'NATIONAL THERMAL POWER CO. LTD. VS. CIT', (1998) 229 ITR 383 (SC) and 'JU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer has rightly invoked Rule 8D of the Rules to disallow the expenditure incurred for earning the exempt income. It is also submitted that Supreme Court in the case of GODREJ AND BOYCE MANUFACTURING COMPANY LTD. supra has held that disallowance under Section 14A read with Rule 8D of the Rules is applicable to the dividend income and disallowance of expenditure in terms of Rule 8D is justified. 10. Learned counsel for the revenue in I.T.A.No.468/2016 submitted that finding of the tribunal allowing the claim under Section35(iv) of the Act for the first time before the appellate authority without revising the return of the income is incorrect and is contrary to provisions of Section 139(4) of the Act. It is submitted that Supreme Court in GOETZE LTD. VS. COMMISSIONER OF INCOME TAX (2006) 127 TAXMAN 1 (SC) has held that assessee can amend or modify the return of income only by filing revised return of income. It is submitted that the interpretation placed by the tribunal on the aforesaid judgment that the principle of law laid down in the aforesaid decision is applicable only for assessing authority and not for appellate Authority is incorrect. It is also submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertinent to mention here that the nature of the expenditure has to be seen and not the nature of receipt and purpose for which such expenditure is made is a relevant criteria. The expenditure was incurred by the assessee for research and development for manufacture of aircrafts, which were to be sold. Thus, the expenditure was incurred for the purpose of business of the assessee and the same ought to have been allowed under Section 37 of the Act instead of Secrtion35(1)(iv) of the Act. 12. So far as the claim of the assessee under Section 14A of the Act is concerned, sub-Section (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules prescribe a formula for determination of expenditure incurred in relation to income, which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. The sine qua non for invocation of power under Section 14A of the Act read with Rule 8D of the Rules is the recording of satisfaction by the Assessing Authority that having regard to the accounts of the assessee it is not possible to arrive at the satisfaction with regard to the correctness of the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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