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TMI Blog2016 (5) TMI 1557X X X X Extracts X X X X X X X X Extracts X X X X ..... rant was of capital nature. In such circumstances it cannot be said that assessee had failed to disclose fully and truly all material facts necessary for the assessment. Revenue also has to bring in tangible materials which had helped it to come to a conclusion that income chargeable to tax had escaped assessment. Main reason cited by the AO for coming to a conclusion that income of the assessee had escaped assessment is that the assessee had misrepresented and not furnished details of revenue expenditure claimed in the profit and loss account. In our opinion this is far from truth since the AO in the original assessment order clearly mentioned that the books were produced and verified.We are of the opinion that conditions which were required to be satisfied for invoking Section 147 of the Act for the impugned assessment years were not satisfied. We therefore set aside the assessments for the impugned assessment years. Grounds 2 and 3 of the assessee are allowed. MAT computation for Disallowance u/s.14A - HELD THAT:- We find this issue had come up before Hon ble Delhi High Court in the case of CIT v. Goetze (India) Ltd 2013 (12) TMI 607 - DELHI HIGH COURT] wherein their Lordship he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. In the result, ground 5 of the assessee stands allowed for statistical purpose. X X X X Extracts X X X X X X X X Extracts X X X X ..... . 05. Per contra Ld. DR submitted that assessee had deducted the grants received from Government for research and development, from its income, though it was credited to the profit and loss account. As per the Ld. DR it was true that such amounts were considered by this Tribunal in earlier years to be capital receipts not includible in the income of the assessee. However, as per the Ld. DR, this Tribunal in assessee's own case for A. Y. 2009-10 by order in ITA No.309/Bang/2013, dt.22.04.2016, had affirmed a disallowance made for expenditure incurrred from such grants. This Tribunal as per the Ld. DR had clearly observed that expenditure incurred out of the grants received from Government would result in acquisition by the assessee of a capital asset in the form of indigenous and self-reliant technology in the manufacture of Light combat aircraft and Light combat helicopters, which was required for defence of the country. Thus as per the Ld. DR claim of the assessee that expenditure incurred from the grants was revenue in nature was not correct. Further as per the Ld. DR, AO during the course of assessment proceedings had not considered this issue, nor had reached any opinion. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t received by the assessee. CIT (A) was of the opinion that during the course of assessment proceedings AO had not considered whether expenditure could be considered as a capital outgo or not. During the course of assessment proceedings, assessee had filed a letter dt.16.11.2007 which in relation to the grant received by the assessee from the Central Government had given an explanation which read as under : 3 GRANTS: 3.1 The Hon'ble ITA T has held that the grants received though credited to P & L account is capital receipt and hence not income chargeable to tax for A. Y. 1995- 96, A.Y.1997-98, A.Y. 1994-95 & A.Y.1996-97. Further the Hon'ble ITAT while disposing the Assessees's appeal for A. Y. 1994-95 & 1996-97 (common order), did not agree with contention of the learned representative for the revenue that the same is income 14A of the Income Tax Act, 1961. This issue is flowed by CIT (A) for A. Y. 1998-99 to A. Y. 2002-03 as cab be seen from the Chart No. 4 enclosed herewith. 3.2 The Income Tax Department has gone on appeal With Hon'ble Karnataka 'High Court for A.M. 1995-96. 1997-98. 1994-95 & A-Y- 1996-97 under section 260A of the Income Tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the grants were being used for developing technology for design and manufacture of items which would be capital asset, but still it would not be eligible for claim of depreciation. Even during the course of assessment proceedings, during A. Ys. 2003-04 assessee had addressed a letter dt.29.12.2005 to the AO which has been reproduced by this Tribunal in its order dt.22.04.2002 in ITA No.309/Bang/2013 in assessee's own case. Relevant observation of the Tribunal is reproduced hereunder : 09. When the original assessments for both the impugned assessment years were passed, the AO had with him the reply given by the assessee during the course of assessment proceedings for A. Ys. 2003-04 as well as the order of the Tribunal in assessee's own case for A. Y. 1995-96. Thus we cannot say that the AO was not aware of the claim of the assessee during the course of original assessment proceedings. Assessee had brought to the notice of the AO the Tribunal order wherein the observations clearly indicated that expenditure incurred from the grant was of capital nature. In such circumstances it cannot be said that assessee had failed to disclose fully and truly all material facts necessary for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B of the Act, no doubt Calcutta Tribunal in the case of Integrated Coal Mines Ltd (supra) had held that disallowances made u/s.14A could not be added back while computing the book profit u/s.115JB of the Act. Similar view was taken by Mumbai Bench in the case of Owen'snCorning (India) P. Ltd (supra) and Chennai Bench in the case of Beach Minerals Co. (P) Ltd (supra). However, we find this issue had come up before Hon'ble Delhi High Court in the case of CIT v. Goetze (India) Ltd [(2014) 361 ITR 505], wherein their Lordship held that by virtue of Explanation (i)(f) to Section 115JB(2) of the Act, expenditure relatable to any income to which Section 10 apply was to be added back to book profit for MAT computation. Relevant paras 30 to 32 of the judgment is reproduced hereunder : 30. Interpreting the said provision in Honda Seil Power Products Ltd. v. Deputy CIT [2012] 340 ITR 53 (Delhi), it has been held as under (page 58) : "The petitioner has relied upon the proviso to section 14A of the Act. The proviso, according to us, is not applicable in view of the fac tual matrix of the present case and does not protect or come to the aid of the petitioner. In the present case, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble income under section 14A of the Act. However, on the question of quantum of deduction to be made under section 14A, the matter is remanded to the Tribunal. By virtue of the above judgment of Hon'ble Delhi High Court the decisions of coordinate bench relied on by the assessee stands overruled. Ground no.4 of the assessee is dismissed. 14. Other two effective grounds of the assessee are on disallowance u/s.37 of the Act, treating the expenditure out of capital grants received from Central Government, as capital outgo, and in the alternative not giving it the benefit of Section 35(1)(iv) of the Act, for scientific research. 15. Both these issues have been considered by this Tribunal in assessee's own case for A. Y. 2009-10 in ITA No.309/Bang/2013, dt.22.04.2016. On the first issue the Tribunal affirmed the order of the lower authorities disallowing the claim u/s.37 of the Act. However this Tribunal had allowed the alternative claim for allowance u/s.39(1)(iv) of the Act and remitted it back to the AO for verification and quantification. Relevant paras 15 to 20 of the Tribunal order is reproduced hereunder : 15. We have perused the orders and heard the rival contentions. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eloping technologies or design for manufacture which would be a capital asset. This was the reason why Tribunal accepted the claim of the assessee that grants received were capital in nature. 16. In assessment proceedings for A. Y. 2003-04 also there was an issue regarding nature of the grant received from the Central Government. Assessee had during the course of hearing for said year addressed a letter to the ACIT, dt.29.12.2005, giving a background of its claim regarding the grant. Copy of this has been placed at paper book pages 231 to 258. Relevant paras appearing therein is reproduced hereunder : 4 17. At para 4.1.6 above it is admitted by the assessee that expenditure incurred out of the grants received from the government would result in acquisition by the assessee of a capital asset in the form of indigenous and self-reliant technology for the manufacture of LCH / LCA, which were required for the defence of the country. Conditions of the Grant required the assessee to utilise it for the R & D of the LCA and LCH and related technology. Thus the expenditure incurred by the assessee using such grant which were debited to its profit and loss account were such that it woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciate this finding of the CIT (A). Development of avionics for modern LC air-craft and helicopter, radar systems for fighter aircrafts, requires considerable scientific research and cannot be considered as mere R & D expenditure. Definition of scientific research as given in Section 43(4) of the Act, brings within its fold any activity for the extension of knowledge in the field of natural or applied science. To say that research that goes into development of modern LCA or helicopter is not an activity for the expansion of knowledge of applied science is, in our opinion, will be incorrect and far from truth. Thus assessee had every right to say that it was engaged in scientific research and deduction u/s.35(1)(iv) of the Act, was available to it. CIT (A) in our opinion, erred in considering it to be a fresh claim which required filing of a revised return. Judgment of Hon'ble Apex Court in the case of Goetze (India) Ltd (supra) only limits the power of the AO to consider a new claim but does not limit the powers of appellate authorities in any way. However the question as to what could be the amount of scientific research expenditure on which assessee is eligible for claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the P & L account was incorrect and deleted it. 19. Now before us, Ld. DR submitted that by application of matching principles, grants once considered as capital receipt, expenditure incurred from such grants also had to be considered as capital out go. Therefore according to him it was necessary that such disallowances were added back to the book profit for levying MAT. 20. Per contra, Ld. AR supported the order of the CIT (A). 21. We have perused the materials and heard the rival contentions. For the purpose of profits u/s.115JB of the Act, what can be added and what can be deleted are clearly set out in Explanation to Section 115JB(2) of the Act. Only if an amount falls in any of the Explanation can there be an adjustment to the book profit. There is no case for the Revenue that expenditure disallowed by the AO for the purpose of computing total income under the normal provisions of the Act fell within any of these clauses. CIT (A), in our opinion, had correctly appreciated the dictum laid down by the Hon'ble Apex Court in the case of Indo Rama Synthetics (I) Ltd (supra). We also note that AO had added back the expenditure relating to the research as capital in n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO. 24. Now before us, Ld. AR strongly assailing the orders of lower authorities submitted that unless and until AO could show that claim of assessee with regard to not incurring any expenditure for earning the exempt income was incorrect. According to him, Section 14A of the Act could not be invoked unless claim of the assessee was shown by the AO as wrong.. Reliance was placed on a decision of coordinate bench in the case of DCIT v. Subramanya Constructions and Development Co. Ltd [(2015) 154 ITD 303]. 25. Per contra, Ld. DR strongly supported the orders of authorities below. 26. We have perused the orders and heard the rival contentions. What we find is that the AO had not made any disallowance for direct or indirect interest. He had made a disallowance only for indirect expenditure. During the relevant previous year, investment of the assessee had gone up from ₹ 44.03 crores to ₹ 230.65 crores. Claim of the assessee that there was no indirect expenditure incurred by the assessee cannot be accepted in the face of the above. Investments made, whether strategic or otherwise would necessarily require application of mind by the concerned authorities of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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