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TMI Blog2024 (9) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... ,441/-. If this figure is taken as correct, then the assessee should have claimed deduction of Rs. 6,78,32,882/- @ 200% of the expenditure and not Rs. 6,66,06,663/- as actually claimed. This indicates that the details of R D expenditure as furnished was not correct. Further, the difference of Rs. 25,07,151/- being expenditure not approved by the DSIR was also not properly explained by the assessee. Therefore, the matter is set aside to the file of the AO to correctly verify the expenditure incurred by the assessee on in-house R D center and, thereafter, allow the deduction at the eligible rate, without taking into account the expenditure as certified by the DSIR. The ground taken by the assessee is allowed for statistical purposes. Disallowance of interest expenses u/s 36(1)(iii) - assessee had made huge addition to the fixed assets/CWIP during the year - AO considered the borrowed funds of the assessee vis- -vis CWIP and proportionate interest disallowance on CWIP - HELD THAT:- From the Schedule-B of balance sheet it is seen that the assessee had surplus reserve of Rs. 3,392,038,627/- which also would have been deployed towards CWIP. In fact fresh share premium of Rs. 2,356,380,31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a specific ground in this regard before the Ld. CIT(A) in order to enable him to examine the matter on the merits, within a reasonable period of time. The ground of assessee is allowed for statistical purposes. Disallowance of provision of bad debt - AO noticed that the assessee had debited an amount on account of provision of bad debts in its P L account - Claim disallowed by the AO for the reason that the bad debt was not actually written off by the assessee during the year under consideration and the addition as made by the AO was upheld by the CIT(A) - HELD THAT:- The deduction in respect of provision for bad and doubtful debt is admissible u/s 36(1)(viia) which is applicable to banking companies, financial institutions, non-banking financial company etc. and the said provision is not applicable in the case of present assessee. Therefore, we have to examine the claim for deduction of the assessee in accordance with the provision of Section 36(1)(vii) of the Act. The basic requirement for claiming deduction under Section 36(1)(vii) of the Act is that the bad debt should be written off as irrecoverable in the accounts of the assessee for the previous year, in which the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant's case, the learned assessing officer has grossly erred and the Ld CIT A has grossly erred in confirming the computation of the quantum of disallowance at 200% ie. Rs. 50,34,302/-, even when as per the provisions of Indian income Tax Act u/sec. 35 the same is eligible for atleast 100% allowance at Rs. 25, 17,151/-. 3. In law and in the facts and circumstances of the appellant's case, the learned assessing officer has erred and the Ld. CIT A has erred in confirming in disallowing interest expenses to the extent of Rs. 212,94,836/- considering the same to be of capitalized on account Capital WIP of the assessee company. Further, the Ld. AO has erred in determining and the Ld. CIT A has erred in confirming that the quantum of the same should be net of the quantum of amount already capitalised by the appellant company and duly identified by the assessee company as interest debit during the year in P/L account and not availed deduction. Also, the Ld. AO has erred in determining and the Ld. CIT A has erred in confirming that, in the event, there is any amount finally determined to be of capital nature, the depreciation allowance in respect of the same be eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had filed the report of the Department of Scientific and Industrial Research (DSIR) in Form No.3CL and it was found that expenditure to the extent of Rs. 313.99 lacs only was approved by the DSIR. It was explained by the assessee that the quantum of expenditure certified in Form No.3CL excluded clinical trial expenses, as the same were attributable to in-house R D center. The AO held that the assessee was eligible to claim deduction under Section 35(2AB) of the Act only in respect of expenditure of Rs. 3,13,99,290/- as approved by the DSIR. According to the AO, the assessee was not eligible for claim the weighted deduction @200% of R D expenditure of Rs. 25,17,151/-, which was not approved by the DSIR. Accordingly, he disallowed a sum of Rs. 50,34,302/- (being 200% of the amount of Rs. 25,17,151/- not approved by the DSIR) under Section 35(2AB) of the Act. The disallowance as made by the AO was confirmed by the Ld. CIT(A). 6. Shri Bandish Soparkar, Ld. AR for the assessee submitted that there was no requirement under the provision of Section 35(2AB) of the Act that the expenditure has to be certified by the DSIR. Such amendment was brought on the statute w.e.f. 01.04.2016 only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee on in-house R D center and, thereafter, allow the deduction at the eligible rate, without taking into account the expenditure as certified by the DSIR. The ground taken by the assessee is allowed for statistical purposes. Ground Number-3: Disallowance of interest u/s 36(1)(iii): 9. The next ground pertains to disallowance of interest expenses of Rs. 2,12,94,836/-. The AO noticed that assessee had made huge addition to the fixed assets/CWIP during the year. He, therefore, called for the working of capitalization of interest on CWIP. It was explained by the assessee that CWIP included an amount of Rs. 1,43,41,166/- towards interest capitalization by the assessee itself. The AO, however, was not satisfied with the explanation of the assessee. He, therefore, considered the borrowed funds of the assessee vis- -vis CWIP and proportionate interest disallowance on CWIP was worked out in the following manner: Borrowed Fund as on 01.04.2010 1751152489 Borrowed Fund as on 31.03.2011 906171525 Average Borrowed Fund (A) 2657324014 1328662007 Interest Paid during the year (B) 112144011 CWIP for the year as on 01.04.2010 (Other than R D) 343097237 CWIP for the year as on 31.03.2011 (Ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 400/Ahd/2018. The finding as given in the said order is reproduced below: 61. Ground No.3 raised by the Revenue reads as under: 3. The Ld CIT(A) had erred in deleting the disallowance of u/s. 36(1)(iii) of the IT Act. 62. Briefly stated the AO noted substantial investment made by the assessee in capital work-in-progress (CWIP) increasing from Rs. 94.58 crs as at the beginning of the year to Rs. 392.08 crs as at the end of the impugned year. He also found that the assessee had made huge payment of interest, to the tune of Rs. 47.48 crs during the year. The assesses explanation of investment in CWIP being made out of own funds was rejected by the AO since the assessee failed to establish nexus and establish that borrowed funds were utilized for giving capital advances for the purpose of CWIP. Accordingly he held that borrowed funds had been used for investing in CWIP and computing the funds so allegedly deployed on CWIP on the average CWIP for the year he worked out the interest attributable to the same on proportionate basis amounting to Rs. 15,11,66,895/-, which accordingly was disallowed in terms of section 36(1)(iii) of the Act. 63. The ld.CIT(A), however, noted that inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of interest amounting to Rs. 15,11,66,895/- made under section 36(1)(iii) of the Act. Ground of appeal No.3 is dismissed. 12. Respectfully following the decision of the Co-ordinate Bench as well as considering the facts as discussed earlier, the disallowance of interest of Rs. 2,12,94,836/- as made by the AO is deleted. The ground taken by the assessee is allowed. Ground Number-4: Disallowance of capital loss: 13. The next ground pertains to disallowance of capital loss of Rs. 16,35,331/-. The reason for disallowance as given by the AO in the assessment order is found to be as under: 6.1 From the perusal of the financial statement, it was noticed that there was Opening and Closing CWIP and addition to assets made during the year. During the course of the scrutiny vide point No. 7 of the notice u/s 142(1) the assessee was asked to furnish the detailed working of Loss on the sale of assets with an explanation as to whether it was added back to the total income or not. In response, the assessee submitted some details on this issue. As no clarity and conformity was noticed between the CWIP and addition to assets from the details submitted by the assessee, vide order sheet entry date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WIP of Rs. 1635331/-. Thus, the assessee failed to explain the difference amount of addition to CWIP of Rs. 1635331/-. Thus, the differential amount of Rs. 1635331/- is considered as asset written off and treated as Capital Loss in absence of explanation and evidences and is disallowed and added back to the total income of the assessee. Penalty proceedings u/s.271(1)(c) is being initiated separately for furnishing inaccurate particulars of income. The addition as made by the AO was confirmed by the Ld. CIT(A). 14. The Ld. AR submitted that AO was not correct in making disallowance of Rs. 16,35,331/- on account of capital loss as the same comprised a quantum of expenditure laid down on R D which was eligible for allowance under Section 35 of the Act. He further submitted that if not allowed as revenue expenses, then the capital loss as determined by the AO should be allowed to be carried forward. Per contra, the Ld. CIT-DR supported the order of the lower authorities. He submitted that the assessee had failed to explain the difference in the addition to CWIP and this was not an actual capital loss which can be allowed carry forward, as claimed by the assessee. 15. We have carefully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-resident under Section 40(a)(ia) of the Act. 17. The Ld. AR submitted that this issue was not dealt by the Ld. CIT(A) and no finding has been given in this regard in his order. He, however, submitted that identical issue was involved in assessee s own case in A.Y. 2013-14 in ITA No.400/Ahd/2018 and relief was granted to the assessee. The Ld. CIT.DR, on the other hand, relied upon the order of the AO. 18. We have carefully considered the rival submissions. It is found from the copy of the Form No.35 filed by the assessee that no specific ground was taken before the Ld. CIT(A) in respect of addition of Rs. 11,47,701/- under Section 40(a)(ia) of the Act. Therefore, the Ld. CIT(A) cannot be faulted for not giving any finding on this issue, when the matter was not specifically raised before him. However, considering the fact that this issue was also involved in assessee s own case in A.Y. 2013-14 where the issue was decided in the favour of the assessee, we deem it proper to set aside the matter to the file of the Ld. CIT(A) to examine the matter on the merits of the case. The assessee is also directed to raise a specific ground in this regard before the Ld. CIT(A) in order to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, which is applicable to banking companies, financial institutions, non-banking financial company etc. and the said provision is not applicable in the case of present assessee. Therefore, we have to examine the claim for deduction of the assessee in accordance with the provision of Section 36(1)(vii) of the Act. 23. The basic requirement for claiming deduction under Section 36(1)(vii) of the Act is that the bad debt should be written off as irrecoverable in the accounts of the assessee for the previous year, in which the deduction is claimed. Further that, such claim should not be on account of any provision for bad and doubtful debts . This aspect was examined by the AO in the course of assessment and he has given the following finding in this regard: 4.2 Since the above reply of the assessee was not giving any clarity on this Issue and the assessee had not furnished any evidences to establish its contention that the provision for Bad Debts were actually Bad Debts Written Off, the assessee was afforded another opportunity to furnish justification and evidences in support of its claim. In response, again the assessee vide letter dated 16/01/2015 stated the very same reply whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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