9911796707
TMI Blog2020 (4) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure u/s 35(2AB) and the Ld.CIT(A) failed to consider the decision in the case of M/s Advik Hi Tech Pvt. Ltd. (2014) 51 taxman.com 245 (Pune Tribunal) which is in favour of revenue and was given after considering the Hon'ble High Court orders relied upon the Ld. CIT(A). 2. On the facts and in the circumstances of the case and in law the order passed by learned CIT(A) is erroneous and the learned CIT(A) has erred in deleting the addition of Rs.2,34,335/- made by AO u/s 14A. 3. On the facts and in the circumstances of the case and in law the order passed by learned CIT(A) is erroneous and the learned CIT(A) has erred in deleting the disallowance of Rs.7,32,00,000/- made by AO on account of disallowance of expenses claimed on payment basis out of outstanding provisions standing in the books of accounts. 4. On the facts and in the circumstances of the case and in law the order passed by learned CIT(A) is erroneous and the learned CIT(A) has erred in deleting the addition of Rs.5,59,00,000/- made by AO on account of disallowance of bad debts." 3. In ITA No. 581/Del/2016, following grounds have been raised by the revenue: "1 On the facts and in the circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted general recognition by the Department of Scientific and Industrial Research, Ministry of Science and Technology ('DSIR') upto 31.03.2011, vide approval dated 05.06.2008. However, pending receipt of approval from DSIR for the purpose of section 35(2AB),EML divested the commercial vehicle undertaking, including the aforesaid R&D facility at Pithampur, to the assessee by way of demerger, w.e.f. 01.07.2008. Pursuant to the aforesaid transfer, EML filed letter dated 13th October, 2008 before DSIR to consider following amendments in the earlier approvals granted by DSIR and also for renewal/ extension of recognition pending before DSIR: i) To grant approval under section 35(2AB) in respect of R&D facility at Pithampur for the period 1.4.2007 to 30.6.2008 in the name of EML; ii) To change the recognition letter dated 5.6.2008 for the in house R&D facility at Pithampur in the name of the assessee instead of EML w.e.f. 1.7.2008, and iii) To treat application dated 3.9.2007, requesting for renewal of approval under section 35(2AB) of the Act in respect of R&D facility at Pithampur, in the name of the assessee, for the period commencing from 1.7.2008 and grant approval from tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction u/s 35(2AB) cannot be allowed for expenses incurred prior to 09.03.2009. 2. The case of the AO is that since DSIR, the approving authority, has mentioned the specific date 09.03.2009 while granting approval to the assessee company, the benefit u/s 35(2AB) cannot be given prior to that date. The plea of the assessee is that the date of recognition/appeal of the in-house R & D facility, being not a condition precedent for claiming deduction u/s 35(2AB), scientific research expenses incurred at an approved R & D facility notwithstanding the date of such recognition shall be eligible for weighted deduction. It is the plea of the assessee that the cutoff date mentioned by DSIR in the approval granting recognition to the R & D facility of the assessee company is extraneous and irrelevant for claiming weighted deduction u/s 35(2AB) of the Act. 3. The CIT(A) has allowed the deduction relying on the decision of Gujarat High Court in the case of the CIT Vs. Claris Life Sciences Ltd. 326 ITR 251. The CIT(A) has discussed the issue on Page no. 7-11 of his order. 4. In the present case, in-house R & D facility which was earlier owned by EML, prior to slump sale of business to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hable from the facts of the instant case. In the case of Maruti Suzuki, these was some prima facie mistake in issuing the certificate by DSIR. The writ petition was filed against DSIR. Further, the R & D centre of Maruti was already recognised, while in the instant case R & D centre of the assessee is recognised by DSIR for the first time w.e.f. 09.03.2009. 9. In this connection, reliance is placed on the decision in the case of Advik Hi Tech Pvt. Ltd. Vs. Addl. CIT 920140 51 taxmann.com 245 (Pune-Trib.). In the above case, the Hon'ble ITAT has considered the decisions in the case of CIT Vs. Sandan Vikas (India) Ltd. 335 ITR 117 (Del.) and CIT Vs. Claris Life Sciences Ltd. (Guj.). In para 13.3 of the said order, the Hon'ble ITAT has held that in the above mentioned decision simply it was held that once R & D facility is approved by DSIR, the assessee is entitled to weighted deduction u/s 35 (2AB). The Hon'ble ITAT has relied upon the decision of Delhi High Court in the case of Apollo Tyres Ltd. Vs. UOI [2010-279- HC-Del-IT] in W.P No. 13338 of 2009. In the said case, approval dated 10.10.2011 in Form 3CM was granted for period from 01.04.2009 to 31.03.2012. The Hon'ble ITAT held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated in the guidelines that the benefits have been extended to the earlier year subject to the condition that such benefit would be limited only to the capital expenditure. However, in the instant case, the approval has already been in force for the predecessor company. Thus, differentiated. 9. To determine the issue, the sequence of events that followed the recognition granted to EML from the year 2005 needs to be examined. The events are as under: Date Event 22.03.2005 Order for renewal of general recognition granted to Eicher Motors Ltd. ('EML') for R & D Centre at Pithampur by Department of Scientific and Industrial Research, Ministry of Science and Technology ('DSIR') upto 31.03.2008. 10.08.2005 Approval granted by DSIR to EML in Form 3CM under section 35(2AB) of the Act from 21.09.2004 to 31.03.2007. 03.09.2007 Application in Form 3CK filed by EML before DSIR for renewal of approval under section 35(2AB) from 01.04.2007 to 31.3.2012. 05.06.2008 EML was granted general recognition for R & D Centre a Pithampur by DSIR upto 31.03.2011. 01.07.2008 EML divested the commercial vehicle undertaking including the R&D facility at Pithampur, to the assessee (VECV) by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred.] [Explanation.-For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).] (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and [fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed]. (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the 86[Principal Chief Commissioner or Chief Commissioner or] [Principal Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities have been approved u/s 35(2AB) of the Income Tax Act, 1961 upto 31.03.2007 vide your approval order in Form No.3CM dated 10th August 2005 (copy enclosed). In our application dated 03.09.2007, we have applied for renewal of approval u/s 35(2AB) of both the R&D facilities till 31.03.2012 in view of extension of deduction u/s 35(2AB) till 31.03.2012 by the Finance Act, 2007. The aforesaid application is under consideration in your office. It is submitted that R&D facility at Pithampur, is a part of commercial vehicle business of the applicant company (Eicher Motors Limited). It is submitted that commercial vehicle business including R&D facilities situated at Pithampur has been divested w.e.f. 01.07.2008 to the subsidiary company - VE Commercial Vehicles Limited, to jointly develop commercial vehicle business with M/s AB Volvo, Sweden by way of "slump sale" as defined u/s 2(42C) of the Income Tax Act, 1961 on a going concern basis. It is submitted that as per provisions of section 192A of the Companies Act, 1956 read with the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001, the approval of the shareholders for this disinvestment has been received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of slump sale but not by the process of demerger/amalgamation. Hence, the benefit of weighted deduction cannot be allowed to the assessee. 15. Provisions of Section 35(5) reads as under: "Section 35......................... [(5) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing expenditure of a capital nature on scientific research,- (i) the amalgamating company shall not be allowed the deduction under clause (ii) or clause (iii) of sub-section (2); and (ii) the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the latter had not so sold or otherwise transferred the asset.]" 16. Further, the Clause (ii) and Clause (iii) of Sub-Section 2 of Section 35 reads as under: "Section 35(2).............. (i)............................. (ii) notwithstanding anything contained in clause (i), where an asset representing expenditure of a capital nature [incurred before the 1st day of April, 1967,] ceases to be used in a previous year for scientific research re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to avail the correct deduction as per the principle laid down in this order. Addition u/s 14A: (ITA No. 580/Del/2016 A.Y. 2009-10) 19. The Assessing Officer having observed that the assessee has earned exempt dividend income of Rs.12 lacs disallowed an amount of Rs.2,34,335/- u/s 14A r.w.r. 8D(iii). The Rule 8D(2) as applicable to the assessment year 2009-10 reads as under: "[(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.]" 20. During the arguments, it was submitted by the ld. DR that the provisions of Rule 8D (2) was squarely applicable to the case owing to receipt of the exempt income by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITRs gave a categorical finding that the deduction on account of the provisions has not been claimed by the assessee and also held that the assessee had discharged the liabilities against the provisions received from VIPL. The ld. CIT (A) has given this categorical finding after due verification of ledger and books of accounts. 23. Since, the facts are not disputed by both the parties and the issue is purely based on the facts which have been verified by the ld. CIT (A) and since no legal issue is involved , after going through the entirety of the issue, we hereby decline to interfere with the well reasoned order of the Ld.CIT(A). Disallowance of Bad Debts: (Ground No. 4 of ITA 580/2016, Ground No. 2 of 581/2016 and Ground No. 1 of 5734/2016) 24. The assessee has claimed in the P&L account, the bad debts pertaining to CV business acquired from EML (the predecessor company). The AO disallowed the amount on the ground that the said amount has not been offered to tax by the assessee. The ld. CIT (A) gave a categorical finding that the corresponding amount of the debts was offered as income by the predecessor assessee. The assessee has received the business from its predecessor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried on by the assessee. The facts also show that the assessee paid income-tax on the interest income accruing on the debt for the assessment year 1963-64. It is also not disputed that the parties effected a settlement on 31-3-1965 whereby a sum of Rs. 25,000 was accepted by the assessee in satisfaction of the debt and that the balance of Rs. 15,100 was written off by the assessee as as irrecoverable. The question is whether money owed by a debtor under a transaction with a predecessor-firm can be written off as irrecoverable in the accounts of its successor, the assessee, in a subsequent year and could be claimed as a bad debt under clause (vii) of subsection (1) of section 36. Clause (vii) of sub-section (1) of section 36 provides: "(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (i) to (vi)** ** (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year :" Sub-section (2) of section 36 declares : "(2) In making any deduction for a bad debt o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the successor. The recovery of the debt is a right transferred along with the numerous other rights comprising the subject of the transfer. If the law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account, it seems difficult to accept that the same right should not be recognised in the transferee. It is merely an incident flowing from the transfer of the business, together with its assets and liabilities, from the previous owner to the transferee. It is a right which should, on a proper appreciation of all that is implied in the transfer of a business, be regarded as belonging to the new owner. Unless the language of the statute plainly and clearly compels a construction to the contrary, the normal rule of the law should be given its proper play. It is true that clause (i) of sub-section (2) of section 36 declares that a deduction can be allowed only if the debt, or part thereof, has been taken into account in computing the income of the assessee of that previous year or an earlier previous year and that it has also been written off as irrecoverable in the accounts of the assessee for that previous year. In the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the technicians and is enduring in nature and related to brand image of the company and hence capital in nature. The AO disallowed 1/3rd of the expenses holding that they are not allowable in one single year. During the arguments, it was submitted that the assessee is in the business of commercial vehicles which needs continuous innovation and development. The expenses were incurred for imparting the training to the drivers of the dealers so that they will become adept in handling and driving the vehicles. It was submitted that the assessee recruits new employees from time to time who needs to be trained for requisite skills and is an ongoing process. 26. Heard the arguments of both the parties and perused the material available on record. 27. We find that the assessee is in the business of selling commercial vehicles wherein training of the drivers and other technicians is a business expediency. Owing to the new recruitment as well as job rotation, offboarding and attrition of employees, the training is taken to be an ongoing process for any industry. The Assessing Officer observation that it goes to improve the brand building, if at all, is collateral benefit. There is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
