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TMI Blog2025 (3) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... e to scientific research in Form 3CLA. According to us therefore, these contemporaneous evidences sufficiently establish that the capital expenditure was incurred in relation to scientific research and was therefore eligible for deduction u/s 35(1)(iv) . Hence, the order of the lower authorities to that extent stands reversed. We direct the AO to further allow normal deduction for the capital R&D expenditure u/s 35(1)(iv) and resultantly delete disallowance accordingly. This ground therefore stands partly allowed. Denial of deduction u/s 80IC for its plant/unit at Pantnagar - AO observed that the books of accounts were maintained against the principles of accounting standards and was being prepared in a manner to create artificial profits with the intention of claiming increased deduction u/s 80-IC - AR contended that the lower authorities were unable to pin-point any specific defect or infirmity in the audited stand-alone accounts of the eligible unit and rather had made sweeping remarks which did not have any cogent basis - HELD THAT:- We find that the revenue of the eligible unit was booked on prudent accounting principles and in accordance with provisions of Section 80-IA(8). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y saving devices' were specifically mentioned at Sl. No. III(8)(ix), 'renewable energy devices' were mentioned at Sl. No. III (8)(xiii) and 'pollution control devices' were mentioned at Sl. No. III(3)(vii) & (ix). We are therefore in agreement with the Ld. CIT(A) that these fixed assets were in the nature of 'plant & machinery' and hence the assessee had rightly claimed additional depreciation u/s 32(1)(iia) on the same. CIT, DR appearing before us are was unable to controvert the same. We therefore do not see any reason to interfere with the order of Ld. CIT(A) in this regard and accordingly dismiss this ground of the Revenue.
Disallowance made u/s 14A while computing the book profit u/s 115JB - HELD THAT:- This issue stands settled by the decision of Sobha Developers Ltd. [2021 (1) TMI 378 - KARNATAKA HIGH COURT] wherein on similar facts and circumstances it was held that, the disallowance made u/s 14A cannot be added to book profit u/s 115JB. X X X X Extracts X X X X X X X X Extracts X X X X ..... AO is noted to have specifically denied the alternate claim raised by the assessee in respect of 100% of capital expenditure u/s 35(1)(iv) of the Act and instead allowed depreciation @ 15% on the capital expenditure being Rs. 30,06,36,605/- [Rs.100,21,22,016 X 15%]. The AO accordingly disallowed sum of Rs. 557,94,03,835/- (Rs.387,57,96,408/- + Rs. 170,36,07,427) u/s 35(2AB) of the Act. Being aggrieved by the order of the AO, the assessee carried the matter in appeal before the Ld. CIT(A). 4.3 It is noted that the Ld. CIT(A) has in principle upheld the action of the AO. However, before the Ld. CIT(A), the assessee brought to his notice that, the AO had made the disallowance u/s 35(2AB) on the erroneous presumption that, the assessee had claimed weighted deduction @ 200%, whereas the assessee had actually claimed weighted deduction @ 150%. The assessee accordingly pointed out that, the AO had made excessive disallowance of Rs. 314,04,44,623/-. The Ld. CIT(A) is noted to have found this contention of the assessee to be factually correct and accordingly directed the AO to make necessary correction and modify the disallowance figure to Rs. 243,89,59,212/- (Rs.557,94,03,835/- minus Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company shall maintain a separate account for each approved facility; which shall be audited annually and a report of audit in Form No. 3CLA shall be furnished electronically to the Secretary, Department of Scientific and Industrial Research on or before the due date specified in Explanation 2 to sub-section (1) of section 139 of the Act for furnishing the return of income, for each succeeding year." 4.5 In light of the above Rule, as introduced by the IT (10th Amendment) Rules, 2016 applicable with effect from 01.07.2016, the position of law as prevailing in AY 2018-19 is that, furnishing of Form 3CL by DSIR is a pre-requisite to claim the weighted component of deduction u/s 35(2AB) of the Act. The reliance placed by the assessee on the decisions rendered by this Tribunal in their own case in earlier AY 2011-12 is found to be distinguishable as the AY involved was prior to the insertion of the aforementioned Rule. Accordingly, due to the change in position of law, the aforesaid decision is no longer applicable in the relevant AY 2018-19. For the aforesaid reasons therefore, since the expenditure incurred at the R&D facility was not approved by DSIR in Form 3CL, in light of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Appellate Tribunal dated 31.7.2008, by which the learned Tribunal upheld the order of the learned Commissioner of Income Tax (Appeals) and held that the expenditure incurred by the Assessee on Scientific Research was not entitled to weighted deduction of 1.5 times under Section 35(2AB) of the Act as the Project in question was not duly approved by the Competent Authority, however, the Assessee, was entitled to normal deduction of 100% of expenditure incurred only under Section 35(1)(i) of the Act. 3. The learned Commissioner of Income Tax (Appeals) had discussed the above aspect in his order dated 31.10.2006 as hereunder: - ..... 3.2 After considering the submissions I find that the assessing officer has rightly rejected the claim of the appellant u/s. 32(2AB) as there was no approval from the prescribed authority as on the date of completion of assessment. Having regard to alternative claim, I find that the assessing officer had no occasion to consider the claim of the appellant. In the circumstances, the assessing officer is directed to consider the claim of deduction u/s. 35(1)(i) for Rs. 55,12,558/- representing R&D Revenue Expenditure and deduction u/s. 35(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the Appellate Authorities have rightly allowed the claim under Section 35(1)(i) of the Act. The Assessee has not preferred any Appeal against that finding and therefore, the question of approval by the Competent Authority for making such claim becomes irrelevant. Therefore, we do not find any substantial question of law to be arising in the present Appeal. 8. We do not find any merit in the present Appeal filed by the Revenue and the same is liable to be dismissed and accordingly, it is dismissed. No order as to costs. A copy of this judgment may be sent to the Assessee forthwith." 4.8 In view of the above decision supra, the legal position which emerges is that, the denial of weighted deduction u/s 35(2AB) will not disable the assessee from claiming normal deduction for the said R&D expenditure, both revenue & capital, u/s 35(1)(i) and 35(1)(iv) of the Act respectively. Now reverting back to the facts of the present case, it is noted that the assessee had furnished the details of the expenditure incurred at its approved in-house R&D facility before the lower authorities, which was inter alia included in the audited accounts certified by the statutory auditor in Form 3CLA. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts and also the basis of allocation of common costs. The assessee is found to have furnished the requisite details along with explanation in support of its claim. Thereafter, the AO had show-caused the assessee to explain why the claim of 80-IC should not be restricted to 3% of its cost base, which according to the AO worked out to Rs. 69,40,86,511/-. The relevant contents of the show-cause is noted to be as follows:- "In relation to deduction claimed u/s 80/C, the assessee company is show caused to why the claim of 80/C be not restricted as per calculation below for AY 2018-19. Total Cost base for A.Y 2018-19 for Pant Nagar Unit - 7712,07,23,451/- Margin Allowed at 3% - Rs. 231,36,21,703/- Deduction @ 30% -69,40,86,511/- So for Pant Nagar Unit allowable margin is Rs. 69,40,86,511/, while the company has taken a benefit of Rs. 360,05,58,183/. The remaining claim of 80IC i.e. Rs. 290,64,71,673/- is to be disallowed and added back to the total income of the assessee company." 5.2 The assessee is noted to have submitted its reply on 19.04.2021 giving a note on the activities being carried out at the eligible unit. The assessee also explained the manner in which the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, the revenues recognized by the eligible unit was indeed identifiable as the vehicles manufactured in various units were identifiable by their chassis number which contained an alphabet identifying the manufacturing unit. The Ld. CIT(A) further observed that, even the operating costs were identifiable unit-wise. He also noted that, the other common expenditure such as R&D, marketing sales promotion, finance, etc. had been allocated using suitable allocation keys. According to Ld. CIT(A) therefore, the AO should not have disregarded the stand-alone accounts of the Pantnagar Unit. The Ld. CIT(A) is noted to have also analyzed the unit-wise profitability of the eligible 80-IC unit and found that the gross profit was comparatively lower than some other non-eligible units, but the net profit was almost same to certain other non-eligible units. This fact according to Ld. CIT(A) showed that, more indirect expenses were being claimed in other units in comparison to the eligible unit which, according to him, lent credence to the AO's allegation that the profits shown in 80-IC eligible unit was higher. The Ld. CIT(A) thus held that, the allocation of the expenses to the eligible unit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e common & indirect costs, he invited our attention to the relevant cost allocation parameters and showed us that, all the indirect costs including R&D costs, sales & marketing costs etc. were appropriately allocated and debited in the stand-alone accounts of the eligible unit. He thus argued that, the observations made by the lower authorities that, the relevant R&D and sales & marketing efforts were not made by the eligible unit but the revenues included the benefits from such efforts was misplaced as all the relevant costs & expenses towards R&D and sales & marketing had been appropriately allocated to work out the eligible profits of the Pantnagar Unit. 5.6 In light of the above, the Ld. AR contended that the lower authorities were unable to pin-point any specific defect or infirmity in the audited stand-alone accounts of the eligible unit and rather had made sweeping remarks which did not have any cogent basis. He also argued that, the assessee was a listed entity and that separate accounts were being maintained in SAP software for the eligible unit, which was also audited and certified by the auditor. According to him therefore, if the AO was not satisfied with the correctne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 5.9 We have heard the rival submissions and perused the material placed on our record. The AO in the impugned order is noted to have observed that, the assessee operates an eligible manufacturing undertaking in Pantnagar and the profits of this eligible unit has been computed by the assessee at Rs. 360,05,58,183/-. According to the AO, the books of accounts of the eligible unit have been done in a manner to create higher profits than other units, which in his view was nothing but diversion of profits. For holding so, the AO is noted to have majorly disputed the correctness of the revenues booked by the eligible unit, which according to him did not have any basis. The AO also observed that the designs, sketches for the products and marketing activities weren't conducted by the eligible unit whereas, the assessee booked the entire turnover in the eligible unit. According to him, the eligible unit was a cost center only and hence, only a minimum margin of 3% was permissible, which we find was based on his earlier predecessor's estimation done in AY 2016-17. 5.10 On a perusal of the facts placed before us, it is noted that, the assessee had set-up a commercial vehicle manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at the eligible unit is factually erroneous. 5.11 It is noted that the next observation made by the AO for disputing the correctness of the stand-alone accounts was qua the price at which the sales were recorded in the stand-alone financials of the eligible unit. Before adverting to the facts of the present case, let us first have a look at the relevant provisions of the Act. In this regard, it would first be relevant to examine the provisions of sub-section (8) of section 80-IA of the Act which stands incorporated by sub-section (6) of section 80-IC, by virtue of which, sub-section (5) and sub section (7) to (12) of section 80IA is brought into Section 80-IC of the Act. Section 80-IA(8) of the Act mandates that, the profits of the eligible business shall be computed on the basis that transfer of goods are recorded at the market value of goods. The relevant extracts of the provision of section 80-IA(8) of the Act is as follows: "(8) Where any goods [or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce does not warrant interference. Secondly, the Ld. AR has rightly brought to our notice that, under the GST laws, the levy of GST gets triggered upon transfer of goods from one point to another, even if it involves transfer from the manufacturing facility to the sales office of the same assessee. He showed us that, the levy of GST is not dependent upon ultimate sale, but is required to be discharged based on movement of goods from one place to another. It is for this reason that the GST is discharged at the manufacturing point, whereas the sales is recognized in the books when the goods are actually sold to customers and the ultimate risk, reward, possession and ownership is transferred. In light of the foregoing therefore, we are in agreement with the assessee that the recording of revenues of the eligible unit with reference to the prices at which they were sold to the third parties in the open market, was based on sound accounting principles as well as the relevant provisions of law. 5.14 Apart from the above, the Ld. AR additionally brought to our notice that, this manner of revenue recognition has been consistently followed by the assessee in all the earlier years and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer authorities ascribing manufacturing unit to be a cost center to limit the profit attributable to the eligible unit, is found to be erroneous and unjustified. 5.16 The lower authorities are noted to have also laid much emphasis on the R&D efforts and sales/marketing efforts undertaken by the assessee outside the eligible unit, which according to them, were the major contributing factors to the revenues of the company. According to the Ld. CIT, DR, the profits reported by the eligible unit was inclusive of these efforts which should not form part of the stand-alone accounts of the eligible unit. By not segregating the profits attributable to the R&D efforts and sales/marketing efforts, according to the Revenue, the assessee had artificially reported higher profits in the accounts of eligible unit. Having considered the entire gamut of facts show to us, we find these observations to be not only be factually erroneous but also outlandish. As noted above, sales planning, marketing, R&D etc. cannot be considered as profit generators and are subservient to the manufacturing activity. These efforts only aid the manufacturing unit in the course of business. Moreover, the Ld. AR has bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue of the eligible unit was booked on prudent accounting principles and in accordance with provisions of Section 80-IA(8) of the Act. It is noted that, there is no dispute regarding the direct costs debited in the audited stand-alone accounts of the eligible unit. The assessee has further demonstrated that the common/indirect costs have been allocated on sound and reasonable parameters. According to us therefore, the resultant profits relatable to the manufacturing unit as reported in the audited financial statements did not suffer from any infirmity, as wrongly alleged by the lower authorities in as much as there was no excess or higher profits reported by the assessee in its eligible unit at Pantnagar. 5.19 We further note that, the case of the lower authorities is also that, the profits derived by the assessee from the eligible business are more than the ordinary profits of other business and therefore he estimated at what could be a reasonable profit from such eligible business and such profit be taken as reasonably deemed to have been derived from the eligible business for the purposes of computing the deduction u/s 80-IC of the Act. We find that both the AO and the Ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble unit was also different. It was brought to our notice that, the eligible unit manufactured higher tonnage vehicles which had a better margin, whereas other units manufactured the lower tonnage vehicles which had comparatively lower margins. Due to difference in nature of products manufactured, the margins varied. It was also brought to our notice that, the employee costs at the Pantnagar Unit was comparatively lower to other eligible units due to the high level automation at this new plant whereas other plants were still labor-intensive. Having regard to these factors, we thus note that the assessee had also substantiated on facts that the eligible unit enjoyed benefit of subsidies, better margins and savings in costs in comparison to other units, which contributed to its higher profitability. The aforesaid facts lend credence to our view that the mere higher profit earned by eligible unit cannot be the reason to conclude that the assessee transacted in such an 'arranged' manner so as to produce more profits to it. In this regard, we find merit in the Ld. AR's reliance on the judgment of the Hon'ble Bombay High Court in Schmetz India (P.) Ltd.'s case (211 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the SLP preferred by the Revenue has been dismissed by the Hon'ble Apex Court, to be relevant. In the decided case, the AO observed that the profit of the eligible unit of the Assessee located at Baddi was abnormally high when compared to the profits of other units located in Delhi, although the business in these units was the same and all other variables in the business of cosmetics was also similar. The AO accordingly rejected the stand-alone accounts reporting profit of 38.05% and instead adopted 23% for working out the amount eligible for deduction u/s 80-IC of the Act. On appeal, the Hon'ble Delhi High Court held that, without pointing out the specific error in the accounts or disturbing the figures of sales or purchases in terms of Section 80-IA(8) / (10) of the Act, the AO could not have estimated lower profits by comparing the results with other units. The relevant findings taken note of by us, is as under:- "9. Having heard Mr. Asheesh Jain, learned the Senior Standing counsel for the Revenue and Mr. Gautam Jain, learned counsel for the Assessee, the Court is of the view that the orders of the CIT(A) and the ITAT suffer from no legal infirmity. The reasons for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g margin of 3% and 6.09% by the AO and Ld. CIT(A) respectively, is found to be ad hoc, lacking any rational basis and is per-se arbitrary and whimsical and so, is rejected. Moreover, we also note that, it is not a case where the AO had invoked section 145(3) of the Act and rejected the book results and has passed the order u/s 144 of the Act. We thus find merit in the Ld. AR's alternate plea as well that, the AO could not have legally ventured into estimation of profits without rejecting the books of accounts u/s 145(3) of the Act. 5.23 In support of our above findings, we also gainfully refer to the decision of this Tribunal at Ahmedabad in the case of Cadilla Health Care Ltd Vs ACIT (21 taxmann.com 483) wherein this Tribunal, on similar facts & circumstances, had negated the Revenue's contention that the profit attributable to the marketing and R&D activities, which was carried outside the eligible unit, should be demarcated and excluded from the computation of the profits of the eligible unit. In the decided case also, the assessee was carrying out manufacturing operations at its eligible units and that the marketing efforts were being conducted outside the unit and therefore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Baddi Undertaking, which according to AO, was eligible for deduction u/s.80IC of IT Act.... 5.24 After taking cognizance of the above observations made by the AO, the Tribunal is noted to have firstly examined the provisions of Section 80-IC of the Act and the meaning of the term 'profits' from the eligible business. It held that, the term 'profit' implies the gain made by the business. The calculation of 'profit' was held to be a function of the price received upon sale less the total cost. It was noted that, the total cost not only includes manufacturing costs but all other costs including R&D, marketing, common overheads to make the sale possible. The Tribunal thus noted that the assessee's eligible unit had debited all direct and indirect costs in the stand-alone accounts and reduced it from the sales figure to arrive at the profits eligible for deduction u/s 80-IC of the Act. We concur with this analogy of the Tribunal as discussed and the relevant findings taken note of, are as follows:- "Firstly, the term "Profit" implies a comparison between the stage of a business at two specific dates separated by an interval of a year. Thus fundamentally the meaning is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic principle of accountancy, as appeared, have been adopted by Baddi Unit because as per Profit & Loss account, cost of material, personal cost and general expenses, corporate expenses were reduced from the sale price to arrive at the "profit before tax" i.e.Rs. 116,82,91,400/-." 5.25 Like in the present case before us, in the above decided case (supra) also, the AO had not pin-pointed any defect in the working of the "profit" of the eligible Unit and had instead estimated the margin of the eligible at 10% of cost basis. The Tribunal is noted to have held that, there was no cogent basis to the purported segregation and the assumption of the AO that, the major portion of the profit would be attributed to other functions and that only a nominal profit was to be attributed to the eligible manufacturing unit. The relevant findings are as under:- "10.3 It is not in dispute that for Baddi Unit the assessee has maintained separate books of accounts and therefore drawn a separate profit and loss account. In such a situation, whether the AO is empowered to disturb the computation of profit, is always a subject matter of controversy. From the side of the assessee, reliance was placed on A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and as per Indo- UK DTAA the income has to be taxed in India. An another fact was that there was no separate account of the assessee's India operation and the AO had found that on the basis of global accounts the profits were determined on sales. In that case, marketing was said to be the primary activity for earning profit. The profit was directly due to operation in India. In that context the word "attributable" was considered and then it was held that such part of the income as it was reasonably attributable to the operations carried out in India is taxable. The expression "business connection" was also considered and then it was found that it will include a person acting on behalf of a non-resident and carried on certain activities is having business connection. A business connection has to be real and intimate and through which income must accrue or arise whether directly or indirectly to the non-resident. On those facts, since it was found that R&D activities were carried out by the assessee, therefore, 15% of the profit was allocated to the R&D activities and balance of the profit was attributable to the marketing activities in India. The said decision was entirely b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has in fact debited certain expenses which have included head office expenses, such as, marketing expenses and corporate expenses. Meaning thereby the net profit of the Baddi Unit was not merely production cost minus sale price, but the difference of sale price minus all general expenses which were attributable to the sales. Therefore, it is not reasonable to say that unreasonably the profit was escalated. The difference between the two percentages of profit, i.e. about 28% ( G.P. - N.P.) thus represented the expenditure which could be said to be in respect of marketing network and brand of the product related expenses. The AO has not complained about the allocation of expenditure as made by the assessee while computing the profit of the Baddi Unit. Once the assessee has itself taken into account the related expenses to arrive at the net profit, then it was not reasonable on the part of the Revenue Department to further reallocate those expenses by curtailing the percentage of eligible profit. 5.27 We find that the identical factual situation is involved in the present case also. As already noted above, the assessee has already allocated all the indirect costs i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 6% was the manufacturing profit, per A.O. It is true that section 80IC does recognized the provisions of section 80IA. Refer, Sub-section (7) of section 80IC which prescribes as follows:- "Section 80IC(7) : The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section." Due to this reason, our attention was drawn on the provisions of section 80IA(5) of IT Act; reads as under:- ..... As per this section, the profits of an eligible undertaking shall be computed as if such eligible business is the only source of income of the assessee. In this section again, the Statute has used three terms, i.e. "profit", "business" and "income". As narrated hereinabove an 'income' has a wider expression than the 'profit'. Likewise, 'business' has also a wider meaning than the word 'income'. In the present case, manufacturing of pharmaceutical products is declared as "eligible business". Then the question is that what is the profit of such an eligible business? On careful reading of this sub-section, it transpires that the said eligible pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he segregation of profit in case of transfer of goods from one Unit to another Unit. But section 80IA(8) reads as follows:- ..... Where any goods held for the purpose of the eligible business are transferred to any other business carried on by the assessee, then if the consideration for such transfer as recorded in the accounts of the eligible business do not correspond to the market value of such goods, then for the purposes of the deduction the profits and gains of such eligible business shall be computed as if the transfer has been made at the market value of such goods as on that date. Though the section has its own importance but the area under which this section operates is that where one eligible business is transferred to any other business. We again want to emphasis that the word used in this section is "business" and not the word "profit". We can hence draw an inference by describing these two words and thus have precisely noted that 'eligible business' has a different connotation which is not at par or identical with the "eligible profit". The matter we are dealing is not the case where business as a whole is transferred. This is a case where manufacturing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allocation of notional expenditure particularly in respect of self-generated brand is a matter of hypothesis and not a matter of realty. Logically it is not realistic to set apart a value of a self generated brand which had grown in number of years. 10.10 The segment reporting of profit is although in practice but the purpose of such reporting is altogether different. Such segment information is particularly useful for financial analysis, so that the management may keep a close watch on the performance of the diversified business lines. The areas of demarcation are business segment, geographical segment, etc. But as far as the Revenue of an enterprise is concerned while segmentation is required, then Revenue from sales to external customers are reported in the segmented statement of profit and loss. In an accounting system, an intra-company sale between divisions or units is not regarded as Revenue for the purpose of such financial reporting. As per the Accounting Standards an Enterprise Revenue ignores in house-sales that represent Revenue to one segment and Expense to another. In this connection, the AO has discussed the Hon'ble Supreme Court decision pronounced in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & loss account of its manufacturing-cum-sale business activity. If the Statute wanted to draw such line of segregation between the manufacturing activity and the sale activity, then the Statute should have made a specific provision of such demarcation. But at present the legal status is that the Statute has only chosen to give the benefit to "any business of drug manufacturing activity" which is incurring expenditure on research activity is eligible for this prescribed weighted deduction. The segregation as suggested by the AO has first to be brought into the Statute and then to be implemented. Without such law, in our considered opinion, it was not fair as also not justifiable on the part of the AO to disturb the method of accounting of the assessee regularly followed in the normal course of business. It is true that otherwise no fallacy or mistake was detected in the books of accounts of Baddi Unit prepared on stand alone basis through which the only source of income/profit was the manufacturing of the specified products. We therefore hold that the AO's action of segregation was merely based upon a hypothesis, hence hereby rejected. These two grounds Nos.6 & 7 are allowed." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of Rs. 2,90,64,71,673/-. Hence, the Ground Nos. 7 to 15 of the assessee stands allowed and Ground No. 3 of the Revenue is dismissed. 6. Now we take up the remaining grounds in the Revenue's appeal in ITA No. 561/Chny/2023. 7. Ground No. 1 of the Revenue is general in nature and therefore does not call for any specific adjudication and is accordingly dismissed. 8. Ground No. 2 of the Revenue is against the Ld. CIT(A)'s deleting the disallowance of additional depreciation claimed by the assessee u/s 32(1)(iia) of the Act in relation to pollution control and energy saving equipment's. 8.1 According to the AO, the pollution control and energy saving devices which were depreciable at the rate of 40%, did not fall within the definition of 'plant & machinery' and therefore it was not eligible for additional depreciation u/s 32(1)(iia) of the Act. The AO is noted to have accordingly disallowed the additional depreciation of Rs. 13,39,070/- claimed in relation to these devices. On appeal the Ld. CIT(A) is noted to have agreed with the assessee's submission that these devices were specifically mentioned and classified as 'plant & machinery' in the Appendix to Income-tax Rules and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther appeal has been preferred by the Revenue on this aspect. 9.2 However, apart from the above, the AO also added the disallowance computed u/s 14A to the book profit u/s 115JB of the Act. In this regard, the Ld. CIT(A) had held that, the disallowance u/s 14A is a notional disallowance and therefore cannot be added back by taking recourse under clause (f) of Explanation to Section 115JB of the Act, while computing book profit. Following the decision of Hon'ble Karnataka High Court in the case of CIT Vs Gokaldas Images Pvt Ltd (429 ITR 526), the Ld. CIT(A) accordingly deleted the addition made u/s 14A to the book profit as well. Being aggrieved by this order of Ld. CIT(A) deleting the disallowance u/s 14A added to the book profit u/s 115JB, the Revenue is in appeal before us. 9.3 Heard both the parties. Now the issue in dispute before us, is whether the disallowance of Rs. 5,544/- confirmed by the Ld. CIT(A) u/s 14A of the Act was to be added back while computing book profit u/s 115JB of the Act. Before us, the Ld. Counsel for the assessee submitted that this issue stands settled by the decision of Hon'ble Karnataka High Court in the case of Sobha Developers Ltd. vs CIT (43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and has not dealt with section 115JB of the Act. Therefore, the aforesaid decision also does not apply to the fact situation of the case. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue. In the result, the order passed by the tribunal dated 9-1-2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed." 9.4 As far as the decision of Hon'ble Calcutta High Court in the case of CIT Vs Jayshree Tea & Industries Ltd (GA No. 1501 of 2014) dated 19.11.2014 relied upon by the Ld. CIT, DR is concerned, it is found to be distinguishable on facts. In the decided case, the Hon'ble High Court had noted that, the computation of expenditure relatable to exempt income in terms of clause (f) of Section 115JB was required to be made, because in the assessee itself had contended that it had incurred certain expenditure for earning exempt income and it was not the assessee's case that NIL expenditure was incurred in relation thereto. On these specific facts therefore, the matter was set aside back to the AO to arrive at the amount relatable to earning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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