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TMI Blog2010 (2) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses would not be eligible for weighted deduction u/s.35(2AB) and direct the Assessing Officer accordingly to delete such disallowance. 2. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of weighted deduction u/s.35(2AB) of the Act in respect of Municipal taxes (Rs. 2.25 lakhs) and Salary to Dr. Dutt. (Rs. 77.74 lakhs) (Relief Rs. 39,99,500/-) 3. The brief facts of the case are that the Learned Assessing Officer disallowed weighted deduction on R & D expenditure of Rs. 1,03,35,000/- on the ground that the prescribed authority has not considered the following items to be eligible for weighted deduction: Rs. In lac 1. Recurring Expenditure 46.64 (Building related) 2. Recurring Expenditure (Other than building) i) Municipal Taxes 2.25 ii) Professional fees 79.34 iii) Salary to Dr. C.Dutt 77.74 iv) Unexplained 0.42 160.05 He therefore, following the same added back Rs. 103.05 lacs being weighted components of the said expenditure. 4. In appeal, the Learned Commissioner of Income Tax(Appeals) following its order for Assessment Year 2001-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch expenses." 7. The brief facts leading to the above common issue are that the assessee claimed weighted deduction u/s.35(2AB) of the Act amounting to Rs. 31,86,54,942/-. The Assessing Officer stated that for this deduction, the approval in Form No CM is required from Secretary Department of Science and Industrial Research (DSIR in short). Before the Assessing Officer the assessee submitted the agreement for research in Form No.3CL and filed the approval for the facility of in-house research in Form No.3CL. The assessee also filed the approval in Form No. 3CL giving the details of expenditure to be allowed for the purpose of deduction u/s.35(2AB) of the Act for the relevant assessment year. According to the Assessing Officer, the date of approval in Form No.3CL is 23-01-2004 and the assessee has filed its copy of letter sent by DSIR to DG (Income-tax Exempt) Kolkata, dated 27-01-2004. The assessee submitted the total break up of expenditure allowed as per Form No.3CL as under:- (Rs. in lacs) A.Y. 2001-02 i) Capital Expenditure Land: Nil Building 4 9.92 ii) Capital Expenditure Other than Land & Building 178.61 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of expenses covered above. Garden expense has no relation with the research activity. Therefore, I hold that the A.O was justified in excluding these two expenses in granting deduction u/s.35(AB). However, he is directed to allow deduction in respect of the other deductions. This ground is accordingly partly allowed." 8. Before us Ld. CIT Departmental Representative relied on the assessment order and stated that the Assessing Officer has rightly allowed the weighted deduction at 100% on 1,71,47,000/- on the amount of building repairs and other revenue expenses. Accordingly, he supported the orders of the Assessing Officer. On the other hand Ld. Counsel for the assessee carried us to assessee's paper book at page 127 and 128 and narrated the facts as given as under:- Financial Year - 2001-02 (Rs.In lac) Sr. Claimed Granted Disallowed (i) Capital Expenditure: Land:- Building NIL 49.92 NIL 49.92 0.00 0.00 (ii) Capital Expenditure (other than land & building) 178.61 178.61 00 (iii) Recurring Expenditure (other than building) 37.55 -- 37.55 (iv) Recurring Expenditure (other than building) 1856.94 1723.02 133.92 (v) Total c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to weighted deduction of sum of Rs. 37.55 lacs and Rs. 133.92 lacs in view of the following explanations submitted before the lower authorities :- "Section 35(2AB) grants weighted deduction for any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research & development facility as approved by the prescribed authority. What is excluded is cost of land & building and not the recurring expenditure related to building that is repairs and renovation of buildings, therefore, assessee is entitled to weighted deduction for repairs of Rs. 37.55 lacs related to buildings. Similarly, Municipal Tax paid of Rs. 6.93 lacs is entirely related to Buildings wherein in-house research activity is carried on. It is only municipal tax of R & D Centre, Bhatt, hence like current repairs, it is eligible for weighted deduction u/s.35(2AB). So far as security expenses of Rs. 11.01 lacs is concerned, it is submitted that in-house research activity requires proper tight security to avoid leakage through visitors, and only in-house staff will have access to the said Building and no others, and to preserve research which is complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly be allowed, whereas the assessee vide the copy of the letter reproduced hereinabove has very clearly explained as to how the entire expenditure claimed by the assessee is allowable. Thus there was no justification in harping upon the figure contained in Form No.3CL as is done by the Assessing Officer. The provisions of the Act it does not contain any specific conditions for the allowance of expenditure to the effect that it will be restricted that contained in Form No.3CL. Needless to point out that such allowable expenditure etc. is reported by the DSIR to DG (Income-tax Exemption), Kolkata without giving an opportunity of being heard to the assessee wherever he quantifies the expenditure which is less than that claimed by the assessee. We further find that the assessee has included a sum of Rs. 51.26 lakhs as eligible expenditure being Revenue expenditure relating to building and another sum of Rs. 133.92 lakhs being revenue expenditure other than building, which was considered as revenue by the assessing officer himself. These items clearly are within the purview of allowable u/s 35(2AB) of the Act as weighted deduction. The security expenses are also directly related to in- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax are not includible in "total turnover" in the formula contained in section 80HHC(3). Therefore, the ground of appeal of the assessee is allowed and the ground of appeal of the revenue is dismissed. 11. Ground no.3 of the appeal of the assessee reads as under:- "3(a) In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has grossly erred u/s.80HHC by disallowing a sum of Rs. 4,22,85,605 being income of DEPB licences during the relevant assessment year, treating it not as the income from business under the provisions of section 28(iiia), 28(iiib) and 28(iiic) of the Income Tax Act. The Hon. Tribunal may, therefore, be pleased to hold and direct the Assessing Officer to allow deduction u/s.80HHC in respect of profit on sale of DEBP licneces. (b) Without prejudice to the above, the Ld. CIT(A) has erred in fact, in law and in the circumstances of the case by holding that the appellant is not entitled to claim deduction u/s. 80HHC and DEPB income of Rs. 4,22,85,605 by virtue of Taxation Laws (Amendment) Act, 2005, when no such disallowance is called for. It may kindly be deleted. (c) Without prejudice to the above, the Ld.CIT(A) has erred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of DEBP is the face value of the DEBP and the same is covered by clause (iiib) of section 28 whereas profit on sale of DEBP is only the element of profit i.e. sale price minus face value of DEBP and the same is covered by clause (iiid) of section 28 of the Act. On a reading of third proviso to sub-section (3) of section 80HHC, it is observed that the additional condition envisaged therein governs the income covered by clause (iiid) of section 28 and do not effect the income covered by clause (iiib) of section 28. It is also observed that no material could be brought before us by the assessee to show that it satisfied the conditions enumerated in the third proviso to section 80HHC (3) of the Act. On the above circumstances, in our considered view, the lower authorities were justified in denying the claim in respect of profit on sale of DEBP covered by clause (iiid) of section 28 of the Act. But in the instant case, from the materials available on record, it is not clear whether the whole amount of Rs. 4,22,85,605/- is covered by clause (iiid) of section 28 or it also includes the amount which is covered by clause (iiib) of section 28 also. In the circumstances, in our considered opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and direct the Learned Assessing Officer not to charge interest in respect of the income which relates to the lesser grant of deduction under section 80HHC as a consequence to retrospective amendment brought by the Taxation Laws (Amendment) Act, 2005. 21. Ground no.6 of the appeal of the assessee reads as under:- "6. In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has grossly erred in withdrawing interest U/S.244A amounting to Rs. 28,18,963 in the notice of demand." 22. At the time of hearing, the Learned Authorised Representative of the assessee submitted that this ground of appeal of the assessee is not pressed as withdrawal of interest under section 244A would be consequential. Therefore, this ground of appeal is dismissed. ITA No.1347/Ahd/2007 Revenue's appeal 23. Ground no.1 of the appeal of the revenue reads as under:- "1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance out of selling, publicity and Medical literature Rs. 10,11,85,625/-." 24. At the outset, we find that the Learned Assessing Officer made disallowance of Rs. 19,11,85,625/- on account of selling publicity and medical literature which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as helpful in controlling pollution arising from chemical process. Further, garden expenses improve the working condition and thus, this is for the purpose of business and the Learned Assessing Officer wrongly tried to link it with process of production. It was further submitted that it has been held in the case of Steel Tubes India Pvt. Ltd. Vs. CIT (1996) 130 CTR (MP) 547, expenditure incurred in developing garden in front of factory in the process of erection of factory is revenue expenditure. The Learned Commissioner of Income Tax(Appeals) agreeing with the submission with the assessee, deleted the disallowance. 29. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in the business of manufacturing of pharmaceuticals items. In the production, the assessee uses various types of chemicals. In order to control the pollution arising out of chemical process, the assessee has incurred expenditure for the purpose of maintaining garden in factory premises. This expenditure has been claimed deduction by the assessee has been disallowed by the Learned Assessing Officer and allowed by the CIT(A) on appeal by the assessee. The Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpayer, if such price is up to 5 per cent. Less or up to 5 per cent more than the price determined by the Assessing Officer. In such cases the price declared by the taxpayer may be accepted. (ii) The provisions of sections 92 and 92A to 92F come into force with effect from 1st April, 2002, and are accordingly applicable to the assessment year 2002-03 and subsequent years. The law requires the associated enterprises to maintain such documents and information relating to international transactions as may be prescribed. However, the necessary rules could be framed by the Board only after the Finance Bill received the assessee of the President and have just been notified. Therefore, where an assessee has failed to maintain the prescribed information or documents in respect of transactions entered into during the period 01.04.2001 to 31.08.2001 the provisions of section 92C(3) should not be invoked for such failure. Penalty proceedings under section 271AA or 271G should also not be initiated for such default. (iii) It should be made clear to the concerned Assessing Officer that where an international transaction has been put to a scrutiny, the Assessing Officer can have recourse to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place of net interest. The AO has found that the assessee has earned gross interest of Rs. 2,77,73,000/- and he treated the same as income from other sources, by following the decisions of various High Courts, including the decision in the case of Southern Cashew Exporters Vs. DCIT SLP (C) No. 15119-20 of 2003. (264 ITR 142), wherein it was held that income derived from deposit made with the bank was not entitled to the relief u/s. 80HHC of the Act, The appellant has claimed that against gross interest of Rs. 2,77,73,000/-, it has incurred the interest expenditure and the net interest comes to Rs. 1,53,I7,984/-. Therefore, the assessee has reduced the 90% of net interest from the business profit for calculating the deduction u/s. 80HHC of the Act. The AO did not accept this calculation and calculated the deduction by excluding 90% of the gross interest instead of net interest. 11.2 The appellant has submitted that interest income should be treated as part of business income, as the income has been generated from the business funds. Further, the appellant submitted that for the purpose of deduction u/s. 80HHC, net interest should be taken out in place of 90% of gross interest. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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