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TMI Blog2023 (5) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of depreciation on the same also is not tenable. Decided against assessee. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- DR was unable to either controvert the facts relating to the issue that the exempt income earned by the assessee nor was he able to controvert the legal proposition that disallowance u/s 14A of the Act could not exceed exempt income. As noted the decision of Corrtech Energy Ld. [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] , disallowance u/s 14A of the Act cannot exceed the exempt income - in the absence of the ld.DR being able to controvert the finding of the ld.CIT(A), either on facts or in law, we therefore, see no reason to interfere in order of the ld.CIT(A) deleting the disallowance u/s 14A to the extent of Rs.1,58,643/-. Disallowance of prior period expenses - CIT-A deleted the addition noting that the AO has not doubted genuineness of the expenditure, and if it is not allowable in the impugned year, it is to be allowed in the earlier year and the entire exercise is revenue neutral - HELD THAT:- DR was unable to distinguish the decisions relied upon by the ld.CIT(A)for the proposition that the disallowance of prior period expenses being a tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We are satisfied that the assessee has substantial amount own funds in the form of reserve/ surplus which the assessee could utilise for giving advances. In the absence of any contrary material with the AO to negate the claim of the assessee, we are unable to disturb the finding of the ld.CIT(A) on the above. Assessee s claim of expenditure under section 36(1)(iii) of the Act is to be allowed. Decided against revenue. - ITA No(s) : 1705/Ahd/2016, 2174/Ahd/2016, 2175/Ahd/2016, 858/Ahd/2017 - - - Dated:- 19-5-2023 - Mrs. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : None For the Revenue : Shri Vijay Kumar Jaiswal, CIT-DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER: The present appeals relate to the same assessee pertaining to different assessment years. ITA Nos. 1705 2174/Ahd/2016 are cross appeals filed by the assessee and Revenue respectively against the order of the learned Commissioner of Income-tax (Appeals), Gandhinagar, Ahmedabad [hereinafter referred to as CIT(A) for short] dated 09.05.2016 for Assessment Year 2010-11. ITA Nos. 2175/Ahd/2016 858/Ahd/2017 are appeals filed by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 - Rs. 6,79,16,350/- AY 2015-16 - Rs. 1,36,46,780/- AY 2013-14 - Rs. 7,96,97,520/- AY 2014-15 - Rs. 10,93,25,170/- 3. Thereafter, on the schedule date of hearing on 24.08.2022, Shri Sumit Parikh appeared on behalf of the Official Liquidator and sought time to prepare the case. Accordingly, the matter was adjourned to 01.09.2022. Since the Bench did not function on the said date, the case was adjourned to 04.10.2022 and that on the date also none appeared on behalf of the assessee. Thereafter, the case was adjourned to 21.11.2022 and the notice issued by RPAD. On the said date also, none appeared on behalf of the assessee. All the above notices were issued to the Official Liquidator at the address mentioned by him. In the consistent absence of any representation for the assessee before us, therefore, the matter was heard exparte by the Bench on 21.11.2022. Thereafter, on 16.02.2023, it was fixed for seeking clarification from the Department, that after the admission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant s case, the learned CIT(A) while upholding disallowance u/s 35(2AB) has erred in not allowing depreciation and additional depreciation on capital assets The learned CIT(A) ought to have appreciated that such depreciation was not claimed in Return of Income as such assets were considered as part of higher deduction u/s 35(2AB) but when such higher deduction is itself not granted, the appellant is entitled to depreciation and additional depreciation on such assets which in fact is used for Research and Development of appellant s business. 7. As transpires from a bare perusal of the grounds raised as above, the solitary issue raised by the assessee relates to claim of deduction under Section 35 of the Act. A perusal of the order of the Assessing Officer reveals the facts relating to the case as the assessee having claimed deduction under Section 35 of the Act of Rs.11,26,08,375/- (150% of capital expenses) and after debiting revenue expenses to the P L account weighted deduction @ 50% thereof, at Rs.18,49,000/-, of expenses on account of Research and Development. Thus total deduction claimed by the assessee under Section 35(2AB) of the Act amounted to Rs.11,44,57,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed in section 35(2AB) of the Act. Accordingly, it is confirmed that there is no evidence to show that the assessee applied in Form No.3CK for entering into an agreement with DSIR for co-operation in in-house research and development facility and for the audit of the accounts maintained for that facility. There is no evidence to prove that such in house research facility was approved by DSIR. Further there is no evidence to show that the prescribed authority DSIR was satisfied that the conditions provided in section 35(2AB) were fulfilled by the assessee. Thus, it cannot be said that the assessee is entitled for deduction u/s.35 (2AB) as claimed by it and the same is accordingly, rejected. Accordingly disallowance of deduction is made to the tune of Rs.11,44,57,375/-. Penalty u/s. 271(1)(c) is being separately initiated for furnishing inaccurate particulars of income. 8. Before the learned CIT(A), the assessee withdrew its grounds of appeal pertaining to disallowance of deduction under Section 35 of the Act of Rs.11,44,57,375/-. Thereafter, the learned CIT(A) noted that the assessee has raised an alternate ground for allowing 100% of capital cost. The written submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst place and has been unable to substantiate its claim that the capital expenditure pertained to Research and Development. The relevant finding of the learned CIT(A) at paragraph No.8.3 of his order is as under:- 8.3 I have carefully considered the Assessment Order and submission filed by the Appellant. The Appellant has alternatively argued that though it has claimed deduction under Section 35(2AB) being 150% of capital expenditure in Return of Income and if such disallowance is upheld on the ground that there is no approval DSIR, it is entitled to 100% of capital expenditure on the ground that same is for scientific research and allowable as deduction under Section 35(1)(iv) of the Act. This argument was not taken before the AO and even Appellant itself is not able to provide any documentation or evidences that expenditure of capital nature pertains to scientific research hence alternate argument taken by Appellant is not entertained. This Ground of Appeal is dismissed. 10. Before us, the assessee has challenged the disallowance of claim of deduction under Section 35(1)(iv) of the Act of Rs.7,50,72,249/- being 100% of capital expenditure incurred on in-house R D facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance in any case could not exceed the exempt income earned, he restricted the disallowance to the extent of exempt income earned i.e. Rs.87,700/-, and deleted the balance of Rs.1,58,643/- out of total disallowance of Rs.2,46,343/- made by the AO. He relied upon the decision of the ITAT on this proposition that the disallowance under section 14A cannot exceed the exempt income earned. His finding in this regard at para 5.3 of his order is as under: 5.3 I have considered the facts of the case, Assessment order and submission made by the Appellant. During the course of Assessment Proceeding, AO observed that Appellant has shown investments from which dividend income is earned which is claimed exempt u/s 10(38) of the Income tax Act, 1961. The AO has worked out the disallowance under Rule 8D being interest and administrative expenditure at Rs.2,46,343/-. During the course of appellate proceeding it was submitted by the appellant that, it has been claimed by the appellant that in this case, the appellant has the dividend income which was exempt amounting to Rs.87,700/- and therefore, the disallowance cannot exceed to the exempt income of dividend as has Been held by the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at sum, i.e., Rs. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire lax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure 'incurred by the appellant in relation to the tax exempt income . This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. Considering the totality of the facts and in view of the fact that the provisions of Rule 8D are applicable for the year under consideration and in the light of the aforesaid decision of Delhi High Court cited hereinabove and in view of the fact that the disallowance worked out by A.O u/s. 14A is more than the exempt income and considering the alternate submission of Id. A.R. to make a reasonable disallowance u/s. 14A as deemed fit, we are of the view that disallowance of Rs. 5,000/- if made in the present case will meet the ends of justice. We thus direct accordingly. Reliance is also placed on the decision of jurisdictional ITAT Ahmedabad in the following cases: (i) Decision of Hon'ble UAT Ahme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke disallowance of prior period expenses in the impugned year and relied on the order of the Delhi High Court in the case of CIT Vs. M/s. Vishnu Industrial Gases P.Ltd. dated 6.5.2008 and the decision of Hon ble Delhi High Court in the case of CIT Vs. Shri Ram Piston Rings Ltd., dated 5.5.2008. The ld.CIT(A) has also relied on the decision of ITAT, Ahmedabad Bench in the case of Adani Enterprise P.Ltd., ITA No.1859/Ahd/2011 dated 1.1.2006. His finding in this regard at para 6.3 of the order is as under: 6.3 I have carefully considered the Assessment Order and submission filed by Appellant. The Audited Annual Accounts of Appellant shows that it has claimed prior period expenditure of Rs.12,31,000/- in current year. The AO has disallowed such claim on the ground that Appellant has not proved that such expenditure is crystallised in current year. On the other hand Appellant has reiterated that such expenditure is crystallized only in year under consideration and looking to the turnover, such expenditure cannot be disallowed only on the ground that same pertains to earlier Assessment Year. It was also argued by Appellant that if expenditure pertains to earlier Assessment Year, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. DCIT and (2013) 35 taxmann.com (Hyd) now Bharat Ventures Ltd vs. CIT deciding the issue in Revenue's favour. We find that these tribunal's decisions do not confirm to different views of various Hon ble high courts hereinabove. Next case law (2013) 42 taxmann.com 142 (Guj) CIT vs. Gujarat Mineral Development Corporation is an admission order after framing substantial question of law wherein the main case is-still pending for final disposal. We observe that this latter order does not settle a ratio. We take into account above stated discussions, relevant facts and case law to conclude that both the lower authorities have wrongly disallowed assessee's claim or prior period expenditure. The same stands deleted. This first substantive ground is treated as allowed. Following the above decisions of Hon'ble Ahmedabad ITAT which is directly on the issue, addition of Rs. 12,31,000/- made by the AO is directed to be deleted. This Ground of Appeal is allowed. 23. Before us, the ld.DR was unable to distinguish the decisions relied upon by the ld.CIT(A)for the proposition that the disallowance of prior period expenses being a tax neutral exercise no disallowance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of expenditure by the assessee to its eligible and non-eligible units was also not correct. The ld.CIT(A) has dealt with this aspect also and controverted the finding of the AO by bringing out the facts clearly in his order. 29. At para 7.1 of his order, the ld.CIT(A) dealt first with the facts of the case, pointing out the observation of the AO leading to make the disallowance of assessee s claim of deduction under section 80JJA of the Act. He noted that the AO had observed that out of total purchase in the bio-feed division of the assessee of Rs.20.77 crores the AO had noted that captive purchases were to the tune of Rs.7.40 crores, and out of the balance of Rs.13.37 crores, the purchases of Rs.11.64 crores was shown as purchases of feed but classified as biodegradable waste as defined in section 80JJA of the Act. Thereafter, the ld.CIT(A) dealt with the arguments of the assessee on facts countering the finding of the AO that feed purchases was nothing but waste generated by processing guar, tamarind, seed etc. and these waste materials consisted of residual maize, unwanted proteins, fibres, seeds and on these wastes, biological process was carried out by the assessee with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, unwanted proteins, fibres, seeds, etc., and on these wastes biological process is carried out with the help of fermentation to produce biological agent i.e. enzymes which are biocatalysts and are rich in energy value. These biological feed help in improving digestion in animals and poultry. On this basis, Appellant has argued that it has collected wastage from outside parties as well as from inhouse activities, such wastages are processed and it has produced biofeeds , which are biological agents, which are nutrition boosters derived by a combination of various biological processes and useful in animal healthcare industry. So far as argument of AO that wastages purchased by Appellant are not biodegradable, Appellant has referred to various definitions of waste and argued that they are agricultural waste or by-product from agro-processing industry, which is capable of being decomposed in the nature without creating any damage to nature hence such items are biodegradable waste. The Appellant has also explained the manufacturing process of biological agents in its written submission along with diagram to further strengthen its argument that it is entitled for deduction under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l agents as claimed by the assessee. 32. Dealing with the issue, whether waste collected by the assessee from outside party qualified as bio-degradable waste, which the AO had held did not so qualify, he first dealt at length the meaning of bio-degradable waste and found that as per the Collins Dictionary and dictionary of Wikipedia, it meant, the waste which can be broken down and decomposed by bacteria or other living organisms. Then noting the fact that the assessee had purchased material amounting to Rs.11.63 crores which was mainly waste generated during process of guar seeds, tamarind seed etc. which were classified as feed purchase, he noted that they were all capable of decomposing in nature without creating any damage to the nature. He accordingly held that on this basis the feed purchases by the assessee of Rs.11.63 crores, qualified as biodegradable waste as required by the provisions of section 80JJA of the Act. His finding in this regard at para 7.3 of his order is as under: 7.3 Now, the first issue would be whether waste collected by Appellant from outside party as well as in-house is biodegradable waste or not and whether Appellant is carrying on any proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced. The aforesaid Circular does not restrict its benefits only to local bodies. In any event the circular cannot override the clear words of Section 80JJA of the Act which provides deduction in respect of profits and gains derived from the business of collecting and processing/treating of bio degradable waste i.e. bagasse into briquettes for fuel. In these circumstances, we find no fault with the order of the Tribunal both on facts as well as in law. It is further observed that provisions of Income Tax Act nowhere define the word bio-degradable waste . However, Collins Dictionary defines bio-degradable means capable of being decomposed by bacteria or other living organisms . The Dictionary of Wikipedia defines biodegradable waste as a type of waste which can be broken down in a reasonable amount of time into its base compounds by microorganisms and other living things regardless of what those compounds may be. The Appellant has collected waste of Rs.7.39 crore from in-house activity which mainly include husk of Rs.94.47 lacs and residue maize of Rs.5.97 crores. Apart from above, Appellant has purchased material of Rs. 13.37 crores which mainly includes waste generated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the above facts brought on record by the appellant, the appellant falls under first condition as narrated above. 33. The ld.CIT(A) thereafter went on to deal with other aspect/criteria, that whether the products manufactured by the assessee qualified as biological agents as claimed by the assessee, to be eligible to claim deduction under section 80JJA of the Act. He noted that the assessee had explained the entire process of bio-feed for converting into enzymes in three parts, being culture development, seed preparation and final production in plants. He noted that specific micro-organisms are added in the fermentation process which at specified control parameters of pH, temperature, time and to produce specific enzymes. He thereafter noted that this enzymes produced by the assessee were used to replace chemical based antibiotics in animals and poultry. He further noted that the AO had not disproved the contention of the assessee, that the items produced by the assessee were not biological agent. Accordingly, based on the above, he held that the assessee fulfilled other parameters as per the section 80JJA of the Act of having produced biological agents, and his finding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of introducing provisions of section 80JJA has been explained, it has been categorically stated that section is introduced to promote activities like recycling of waste which could in turn be converted into useful resources. The activities carried out by appellant as stated herein above clearly suggest that it has produced biological agents which are rich in nutritional value and same is generated out of biodegradable waste hence profit and gains earned form such process is entitled to deduction u/s 80JJA of the Act. Appellant has referred to the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 wherein it was held that a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally. Since the provisions intended for promoting economic growth has to be interpreted liberally the restriction on it too has to be construed so as to advance the objective of the section and not to frustrate it. Considering the facts of the case as discussed herein above, it is concluded that appellant has produced biological agents after utilizing biodegradable waste and profits and gains ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and non-80JJA unit. It is observed that Appellant has given the comprehensive working of profit derived from 80JJA unit wherein the Appellant has given method of debiting/allocating expenditure between both the units is given. It is pertinent to note that purchases would naturally be on the basis of actual expenditure and cannot be allocated on the basis of turnover as contended by AO. The Appellant has also given the method of allocating power and fuel expenditure, stores expenditure and other expenditure which are on actual basis and this allocation is not found to be improper by the AO. The AO has neither pointed out any single instance of expense which can prove that profit shown in 80JJA unit is higher or expenditure pertaining to 80JJA unit is allocated to non-80JJA unit. Even method of allocating expenditure is accepted by the AO as, such while passing Assessment Orders for subsequent Assessment Years as submitted by the appellant. When the Appellant has used scientific method of claiming expenditure in 80JJA unit and other unit, allocation of expenditure on turnover basis on presumption is not justified. Considering these facts, the alternate argument of AO regarding reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Asst.Year 2010-11, we rejected similar grounds of the Revenue based on the reasons and conclusion made in that year. Since admittedly there is no disparity in the facts and circumstances between the present year and the earlier assessment cited (supra) qua the present issues, we reject the above two grounds in the present year as well, by adopting same conclusion. 41. In the result, the appeal of the Revenue being ITA No.2175/Ahd/2016 is dismissed. Next we take up the Revenue s appeal in ITA No.858/Ahd/2017 for AY 2012-13. 42. The Revenue has raised five grounds in this appeal. We shall first take up ground no.(a), (c) and (d) raised in the appeal. They read as under: (a) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.13,32,326/- made u/s. 12A r.w.r. 8D of the Act. (c) That the ld.CIT(A) erred in law and on facts in deleting the disallowance of deduction of Rs.19,27,10,326/- made u/s.80JJA of the Act. (d) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.21,82,000/- made on account of disallowance of Prior Period Expenses. 43. We find that the issues raised in this appeal are also identical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd on facts in deleting the disallowance of interest of Rs.37,80,000/- made u/s.36(1)(iii) of the Act. 49. As evident from the assessment order, the AO noticed that the assessee has debited an amount of Rs.399.74 lakhs being interest financial charges on secured and unsecured loans. It was also noticed by the AO that the assessee has not charged any interest from persons/ or parties to whom it has given advances. Before the AO, the explanation of the assessee was that the advances made by the assessee represented purchase of goods from the parties, and therefore no disallowance under section 36(1)(iii) of the Act could be made. The assessee has furnished copy of ledger accounts from whom the assessee had purchased goods. However, the ld.AO did not accept the explanation of the assessee and doubted the genuineness of the transactions. The ld.AO was of the view that the assessee has diverted part of borrowed funds for non-business purpose. Accordingly, he invoked provisions of section 36(1)(iii) of the Act and made an adhoc disallowance of Rs.37,80,000/- at the rate of 12% on the loans advances of Rs.3,15,00,000/- shown by the assessee. 50. Before the ld.CIT(A), the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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