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TMI Blog2021 (6) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed u/s 35(2AB) - Ground No.1 raised in appeal by the Revenue is dismissed. Disallowance u/s.14A r.w.r.8D - CIT(A) deleted addition - assessee had made suo-moto disallowance - HELD THAT:- AO in the case before us has made detailed analysis in the assessment order regarding the applicability of Section 14A r.w.r.8D of the Rules with the facts of the assessee's case and further that why such disallowance was required that has also been explained by the AO - This findings sans satisfaction is not the case here. That further, he has made disallowance only one half percent of the average value of investment i.e. 0.50% of ₹ 406,47,45,829/- i.e. ₹ 2,03,23,729/-. Therefore, it becomes essential to verify whether the assessee had actually made suo-moto disallowance of ₹ 16.8 lakhs and whether the same had been analyzed by the AO while making disallowance of 0.50% at the time of assessment. For this exercise, in the interest of justice, the issue needs to be remanded back to the file of Assessing Officer for adjudication after detailed verification as indicated hereinabove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of expenditure on education cess and re-adjudicate while complying with the principles of natural justice and as per law. Thus, additional grounds raised by the Revenue are allowed for statistical purposes. - Shri R.S. Syal, VP And Shri Partha Sarathi Chaudhury, JM For the Assessee : Shri R.D. Onkar For the Revenue : Shri Mahadevan A M Krishnan Smt. Aparva Agarwal ORDER PER BENCH : These three appeals preferred by the Revenue emanates from the different orders of the Ld. CIT(Appeals)-13, Pune dated 13.03.2020 for the assessment years 2014-15, 2015-16 2016-17 as per the grounds of appeal on record. 2. Both the parties herein submitted that in these cases facts and circumstances and the issues involved are identical. After hearing the parties, all these cases are heard together and disposed of vide this consolidated order. First, we would take up ITA No.497/PUN/2020 for the assessment year 2014-15 for adjudication as lead case. ITA No.497/PUN/2020 A.Y. 2014-15 3. In ITA No.497/PUN/2020, the Revenue has raised following grounds of appeal: 1.On the facts and circumstances of the case, the Ld.CIT(Appeals) has erred in deleting the disallowance u/s 35(2AB) of the IT Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment carried out at in-house R D unit as approved by DSIR u/s.35(2AB) of the Act and the details of deduction claimed are as follows : Amount in lakhs Deduction u/s.35(2AB) of the Act Expenditure Eligible deduction Amount debited to P L account Additional deduction claimed in ITR Revenue expenditure 370.95 741.95 370.95 370.95 Capital expenditure 24.27 48.54 0 48.54 395.22 790.44 370.95 419.49 The said expenditure was claimed on the basis of Annual Compliance report filed by the company in the specified format of Annexure IV with Department of Science and Industrial Research (DSIR) and certificate issued by the Auditors. Those documents were filed with the Department. In its submissions, the assessee further submitted that since the expenditure has been incurred for the purpose of research and development activities of the company, the same has, therefore, been incurred wholly and exclusively for the purpose of business and therefore, entire expenditure should be allowed as business expenditure u/s.37 of the Act. Thereafter, the assessee company suo-moto submitted for consideration of disallowance of ₹ 36.87 lakhs u/s.35(2AB) of the Act on account of disallowance of expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on inhouse R D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was asked to explain as to why Rule 8D should not be applied for calculating the disallowance u/s.14A of the Act. Thereafter, the Assessing Officer has greatly in depth analyzed the provisions of Section 14A r.w.r.8D vis- -vis facts of the assessee‟s case. The sanctity and justification for incorporating Section 14A in the Income Tax Act has been well explained by the Assessing Officer vide Para 8.4 onwards of his order. 10. The Assessing Officer vide Para 8.9 observed that the assessee has debited interest expenditure for which the assessee was not maintaining separate fund flow for tax free investment made and regular business activity. Further the assessee has incurred various kinds of expenses in its profit and loss account. It is not possible that the assessee has not incurred any expenditure in connection with such investments and earning of such exempt income. Further the assessee has not disallowed any expenses however, the provisions of section 14A applies to direct as well as indirect expenses. The Assessing Officer further observed that the claim of the assessee that it had not borrowed any funds for the purpose of investment in securities to earn exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had actually made suo-moto disallowance of ₹ 16.8 lakhs and whether the same had been analyzed by the Assessing Officer while making disallowance of 0.50% at the time of assessment. For this exercise, in the interest of justice, the issue needs to be remanded back to the file of Assessing Officer for adjudication after detailed verification as indicated hereinabove while complying with the principles of natural justice and as per law. Thus, Ground Nos. 2 3 raised in appeal by the Revenue are allowed for statistical purposes. 13. Ground No.4 pertains to the deletion of disallowance u/s.10AA(9) r.w.s.80IA(10) of the Act. 14. Brief facts on this issue are that the assessee company is engaged in the international transaction pertaining to the software development services with its associated enterprises during the financial year 2013-14 relevant to assessment year 2014-15. Receipt of fees towards software development services rendered to Persistent Systems Inc. That for the year under consideration, the total international transaction pertaining to the software development services by Pune SEZ Unit and Hyderabad SEZ unit of assessee company with AE amounts to ₹ 39,12,23,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of ₹ 6,59,44,850/- from eligible profits for the purposes of computation of deduction u/s.10AA(9) of the Act. 15. The Ld. CIT(Appeals) vide Para 5.5 has recorded his findings on the issue and therein, he observed that the TPO has not drawn any adverse inference in view of healthy margins of 35.04%. The Assessing Officer on the other hand had proceeded to disallow a part of deduction u/s.10AA of the Act on the total sales of ₹ 44,08,91,258/- from Pune SEZ and Hyderabad SEZ to the AEs. This was done without any cogent basis and that further, the Ld. CIT(Appeals) also relied on the decision of his predecessor deleting this addition which was further upheld by the Pune Bench of the Tribunal in ITA No.1232/PUN/2017, CO No.40/PUN/2019 dated 28.02.2020 for the assessment year 2013-14. The Pune Bench of the Tribunal on this issue has held as follows: 5. During the First Appellate Proceedings, the Ld.CIT(Appeals) has deleted the disallowance and provided relief to the assessee by observing as follows: 2.2.2. I do not reproduce the learned AO s arguments and the Appellant's arguments advanced before the learned AO and before me in this Order as I have dealt with these arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection and 'more than ordinary profits' are not enough to assume an arrangement as contemplated u/s. 80-IA(10) of the Act. The Assessing Officer is also required to prove any such arrangement existing which resulted in more than ordinary profits. The learned AO has not proved any arrangement between the parties in the facts of the case. Therefore, following the decision of the Pune Bench of the Tribunal in assessee s own case (supra.), we are of the opinion that the order of the Ld. CIT(Appeals) is fair and reasonable and it does not call for any interference. Hence, relief provided to the assessee by the Ld.CIT(Appeals) is hereby sustained. Thus, Ground No.1 raised in appeal by the Revenue is dismissed. 16. The Ld. DR fairly conceded that in the given set of facts and circumstances, the issue is squarely covered in favour of the assessee and the addition has been rightly deleted by the Ld. CIT(Appeals). 17. The Pune Bench of the Tribunal on this issue observed that mere existence of the close connection and earning more than ordinary profits are not enough to assume an arrangement as contemplated u/s.80IA(10) of the Act. The Assessing Officer is also required to prove a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the allowability of deduction in respect of the educational cess paid by the assessee. The Ld. Counsel further submitted that this issue is covered in nature by virtue of the decision of the Hon ble High Court of Judicature for Rajasthan Bench at Jaipur in the case of Chambal Fertilisers and Chemicals Ltd. Vs. JCIT, Range -2, Kota. 13. On hearing both the parties on this issue, we find that this issue is covered one by the decision of the Hon ble High Court of Judicature for Rajasthan Bench at Jaipur in the case of Chambal Fertilisers and Chemicals Ltd. Vs. JCIT, Range -2, Kota wherein substantial question of law No.3 is relevant in this regard (Para 3) and the same was adjudicated by the Hon ble High Court at Para 12 of the judgment. The Hon ble High Court on this issue held the said question No.3 is answered in favour of the assessee. For the sake of completeness, the said Paragraph is extracted as under: 12. We have heard counsel for the parties. On the third issue in appeal no.52/2018, in view of the circular of CBDT where word Cess is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case, the Ld.CIT(Appeals) has erred in deleting the disallowance u/s 35(2AB) of the IT Act, 1961 holding that before. tenth Amendment Rule, 2016, the Department of Scientific Industrial Research (DSIR) was having no such power to quantify the expenditure incurred on in-house R D facility without appreciating the fact that the DSIR guidelines provide for submission of Auditor's Certificate every year, which is scrutinized and even before the amendment it was incumbent upon the prescribed authority to go through the details submitted to it. 2. On the facts and circumstances of the case, the Ld. CIT(Appeals) has erred in deleting the disallowance u/s 14A r.w.r.8D of I T Rules, 1962 without appreciating the fact that the A.O had recorded his dissatisfaction regarding the correctness of the claim of the assessee during the assessment proceedings. 3. On the facts and circumstances of the case, the Ld.CIT(Appeals) has erred in not appreciating the fact that the assessee had suo-moto disallowed only a meager amount of expenditure in comparison to dividend income and section 14A of the Act lays down the mechanism for determining such amount of expenditure inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2014-15 while adjudicating the Ground No.4 shall apply mutatismutandis to ITA No.498/PUN/2020 for Ground No.4 also for the assessment year 2015-16. Thus, Ground No.4 raised by Revenue in this appeal is dismissed. ADJUDICATION OF THE ADDITIONAL GROUND : 27. The Revenue has also raised additional grounds of appeal which reads as follows: 1. On the facts and circumstances of the case and in law, the Ld. CIT(Appeals) has erred in admitting additional ground of appeal on education cess and secondary higher education cess of ₹ 2,43,35,761/- without giving an opportunity of being heard to the Assessing Officer. 2. On the facts and circumstances of the case and in law, the Ld. CIT(Appeals), Pune has failed to appreciate the principle of natural justice while allowing relief to the assessee. 3. On the facts and circumstances of the case and in law, it is prayed that the additional grounds of appeal may not be admitted. 4. The appellant prays to be allowed to add, amend, modify, rectify, delete or raise any grounds of appeal during the course of the appellate proceeding. 28. We find similar and identical additional grounds on education cess‟ have been raised in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5,61,06,106/- u/s.14A r.w.r.8D of the Rules. The assessee had made suomoto disallowance of ₹ 16,74,677/- and therefore, the difference amount of ₹ 5,44,31,439/- had been disallowed by the Assessing Officer and added to the total income of the assessee u/s.14A of the Act. 32. The Ld. CIT(Appeals) vide Para 3.5 of his order has provided relief to the assessee relying on the decision of the Pune Bench of the Tribunal in ITA No.1232/PUN/2017 (supra.) wherein the relief on this issue was provided to the assessee on the ground that no satisfaction was recorded by the Assessing Officer while making such addition. We have observed in ITA No.497/PUN/2020, the Assessing Officer had made detailed analysis of the said provisions and required satisfaction has also been recorded in his order. The same observation holds good for this year also. We further observe that this issue in earlier years have been remanded to the file of the Assessing Officer for verification as per our observation therein and accordingly, for this year also, the issue needs to be verified that once the assessee had made suomoto disallowance of ₹ 16.74 lakhs and in the given circumstances when the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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