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TMI Blog2021 (9) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of the AO with a direction to examine the details which will be filed by the assessee before him regarding establishing of having own funds on the particular date of making investments and decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee. The assessee is directed to substantiate its case that he had sufficient own funds on the particular date of making of investments. Disallowance under rule 8D(2)(iii), the claim of the assessee is that the dividend earned by the assessee was directly credited to its bank account without any effort from it and hence, there was no administrative expenditure warranting disallowance. As per rule 8D(2)(iii), the disallowance is to be made only on the average value of the investment from which the assessee yielded exempt income. Therefore, the issue is remitted to the file of the AO to recalculate the average value of the investment from which the assessee has received exempt income and disallow as per rule 8D(2)(iii) of the Rules. The ground No. 3 is allowed for statistical purposes. - ITA No. 2256/H/2017 - - - Dated:- 9-9-2021 - Satbeer Singh Godara, Member (J) And Laxmi Prasa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s contention is not acceptable. 4. For all of the above and such other grounds as may be urged at the time of hearing it is most respectfully prayed that this Hon'ble Tribunal may be pleased to allow the appeal and direct the Assessing Officer to delete disallowances in the Assessment Order in the interest of justice. 1.1. Ground Nos. 1 4 are general in nature, hence, need no adjudication. 2. Briefly the facts of the case are that the Assessee Company, engaged in manufacturing and sale of Bulk Drugs and Pharmaceutical Formulation Products, filed its return of income for the AY 2014-15 on 29.11.2014 admitting total income at ₹ 2,81,94,85,660/-. The Assessee filed a revised return of income for the A.Y. 2014-15 on 30.03.2016, admitting a total income of ₹ 2,78,30,12,260/- under normal provisions and ₹ 3,30,70,75,013/- under the provisions of Section 115JB. The case was selected for scrutiny under CASS and notices were issued u/s. 143(2) u/s. 142(1). The assessment was completed u/s. 143(3) on 13.12.2016 by determining total income at ₹ 279,42,17,491/- by the AO by making following disallowances: 1. Disallowance of ₹ 1,08,22,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n incurred exclusively for R D unit and not been claimed separately in P L account under the head 'professional charges and rent'. 5.3. The CIT(A) rejecting the submissions of the assessee confirmed the disallowance made by the AO for the following reasons: The appellant has not submitted Form 3CM or Form 3CL. The appellant has not submitted any details regarding to whom the rent has paid. The appellant has not been able to justify or differentiate the said expenditure. The appellant has not submitted any documentary evidence with regard to Electricity Maintenance charges in other units. The appellant has not given any information regarding the other units to differentiate expenditure incurred for scientific research and expenditure incurred for non-scientific purpose. Professional charges have been claimed by the appellant. The appellant also not submitted to whom the professional charges were paid and no breakup was submitted before me. No vouchers were submitted to show that the expenditure incurred was exclusively for R D purposes. Appellant neither before the Assessing officer nor before me could differentiate the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19,49,201 (Details filed at page 28 of paper book) Rent ₹ 17,33,712.(Details filed at page 29 of paper book) Electricity and maintenance ₹ 17,27,724.(Details filed at page 30 of paper book) Total ₹ 54,10,637. 3. A.O. was of the view that as per Sec. 35(2AB) of the Act only so much of expenditure as has been approved by the prescribed authority will be eligible for weighted deduction and hence weighted deduction can be allowed only to that extent. Secondly, he stated that the appellant has not been able to justify that such professional rental expenditure has been incurred exclusively for R D and also that it has not been claimed separately in P L under professional charges rent. Thus, the Assessing Officer concluded that the above facts do not entitle the appellant to weighted discussion u/s. 35(2AB) over and above the expenditure approved as per Form 3CL.. In view of the above, the Assessing Officer made disallowance of ₹ 1,08,22,000/- from the claim made by appellant u/s. 35(2AB). 4. Aggrieved by the disallowance made by the A.O., appellant filed appeal before the C.I.T. (Appeals). Appellant submitted before C.I.T. (Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Form 3CL before the Assessing Officer appellant submits that it filed Form 3CL as has been recorded by A.O. in paragraph 4 of the assessment order. 8. The appellant submits that it has been held in several decided cases that once the R D facility is approved, weighted deduction in respect of entire expenditure incurred has to be allowed without restricting the same to the amounts mentioned in Form 3CL. 9. In the case of Cummins India Ltd., vs. DC IT (ITA No. 556 574/PUN/2015 dated 25-09-2018) (pages 1 to 24 of paper book No. 2) case law Hon'ble ITAT held that the Act did not prescribe any methodology of approval to be granted by the prescribed authority and the A.O. was not right in curtailing the expenditure and consequent weighted deduction on the surmise that prescribed authority has only approved part of expenditure in form No. 3CL. Relevant extract from the order of the Hon'ble ITAT is given hereunder: (pages 23 and 24 of paper book No. 2) 45. The issue which is raised in the present Appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown separately in the DSIR certificate and/or not reflected in the certificate is not conclusive of such expenses being ineligible for weighted deduction. Relevant extracts from the ruling are as follows: (page 30 of paper book No. 2) 18 Merely because the prescribed authority segregated the expenditure into two parts, namely, those incurred within the in-house facility and those can were incurred outside, in our opinion, by itself would not be sufficient to deny the benefit to the assessee under section 35(2AB) of the Act. It is not as if that the said authority was addressing the issue for deduction under section 35(2AB) of the Act in relation to the question on hand. The certificate issued was only for the purpose of listing the total expenditure under the Rules... 11. In the case of Torrent Pharmaceuticals Ltd., vs. ACIT (ITA Nos. 970/AHD/2007 1347/AHD/2007 dated 21-05-2010) (pages 31 to 43 of paper book No. 2) Ahmedabad Bench of the Hon'ble ITAT directed allowance of the amounts which were disallowed by the AO on the ground that the prescribed authority has not considered the same to be eligible for weighted deduction. The under mentioned extract from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid. Accordingly, the assessee has rightly paid the entire expenditure of ₹ 133.92 lakhs and building repairs ₹ 37.55 lakhs on which weighted deduction u/s. 35(2AB) of the Act is allowable. In view of the above discussion we allow the claim of the assessee and this issue of the Revenue's appeal is dismissed and that of the assessee's CO is allowed. 12. In the case of Bharat Forge Ltd., vs. Addl. CIT (ITA No. 13/PUN/2017 dated 14-112018) (pages 44 to 54 of paper book No. 2) also, Hon'ble ITAT Pune Bench decided the issue of disallowance of weighted deduction u/s. 35 (2AB) in favour of the assessee, following the ITAT's decision in the case of Cummins India Ltd. Relevant finding of the Hon'ble ITAT (Paragraph 18 of the order) is reproduced hereunder: (pages 53 to 54 of paper book No. 2) The issue arising before us is similar to the issue in Cummins India Ltd. Vs. DClT (supra) and following the same parity of reasoning, we hold that where facility has been recognized by the prescribed authority and agreement has been entered into between facility and the prescribed authority and thereafter the role of Assessing Officer is to look into and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rental expenditure has been incurred exclusively for R D and also that it has not been claimed separately in P L under professional charges rent. Thus, the Assessing Officer concluded that the above facts do not entitle the appellant to weighted discussion u/s. 35(2AB) over and above the expenditure approved as per Form 3CL. In view of the above, the Assessing Officer made disallowance of ₹ 1,08,22,000/- from the claim made by appellant u/s. 35(2AB). We found substance on the findings recorded by the lower authorities. Even before us, the ld. Authorised Representative could not controvert the findings of the Lower authorities. On perusal of record, we find that the expenditure incurred by the assessee towards professional charges, rent and electricity and maintenance are expenditure incurred by the assessee which has not been disputed by the revenue authorities, therefore in the interest of the justice it can be allowed u/s. 37(1) of the Act. Therefore, we remit the issue back to the file of AO with a direction to allow the expenditure incurred under the said heads u/s. 37(1) in accordance with law after providing reasonable opportunity of being heard to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival submissions and perused the material on record as well as gone through the orders of revenue authorities. The AR of the assessee submitted that the assessee has sufficient own funds as on the 1st day of FY and as on closing of the FY i.e. 31-03-2014 and no fresh borrowals were made during the year, but, the assessee could not establish on the date of making of investments that he had sufficient own funds from which the assessee has received exempt income. The AR of the assessee could not demonstrate the date of making of investments. Considering the submissions of the assessee and in the interest of justice, we deem it fit and proper to remit the issue back to the file of the AO with a direction to examine the details which will be filed by the assessee before him regarding establishing of having own funds on the particular date of making investments and decide the issue in accordance with law after providing reasonable opportunity of being heard to the assessee. The assessee is directed to substantiate its case that he had sufficient own funds on the particular date of making of investments. 6.4. As regards the disallowance under rule 8D(2)(iii), the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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