Tribunal directs reassessment, deletes disallowances, upholds deductions, and interest levy.

The Tribunal partially allowed the appeal, directing reassessment and deletion of certain disallowances. The disallowance under S.35(2AB) for scientific research was remitted back to the AO for verification of necessary approval. Disallowance under S.36(1)(iii) for bank interest was deleted as investments were from internal accruals. The direction to allow deduction under S.80G for donation to TTD was upheld. Disallowance of interest on FCCBs under S.40(a)(ia) was deleted as payments were made outside India. The levy of interest under S.234B and S.234C was upheld as calculated by the AO.

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Issues Involved:
1. Disallowance of deduction claimed under S.35(2AB) of the Act.
2. Disallowance under S.36(1)(iii) of the Act out of bank interest and financial charges.
3. Direction regarding deduction claimed under S.80G.
4. Disallowance of interest on Foreign Currency Convertible Bonds (FCCB).
5. Levy of interest under S.234B and S.234C of the Act.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Claimed under S.35(2AB) of the Act:
The assessee challenged the disallowance of Rs. 1,77,03,533 claimed under S.35(2AB) for expenditure incurred on scientific research. The Assessing Officer (AO) disallowed the deduction as the assessee failed to furnish approval in Form No.3CM from the Department of Scientific and Industrial Research (DSIR). The CIT(A) confirmed the disallowance but directed the AO to verify if the expenditure could be allowed under S.35(1)(i) or S.35(1)(iv). The Tribunal noted that the statutory provisions require approval in Form 3CM from DSIR and observed that the assessee had not produced such approval. The Tribunal remitted the matter back to the AO to allow the assessee to furnish the necessary approval and redecide the matter.

2. Disallowance under S.36(1)(iii) of the Act out of Bank Interest and Financial Charges:
The AO disallowed Rs. 17,85,000 out of bank interest and financial charges, noting that the assessee made investments in equity shares of two companies from which dividend income is exempt. The assessee contended that the investments were made from internal accruals and not borrowed funds. The CIT(A) upheld the disallowance. The Tribunal, however, found that the investments were made from internal accruals and sufficient interest-free funds were available. It also noted that the investments were made in earlier years, not in the assessment year under consideration. The Tribunal deleted the disallowance, allowing the grounds of the assessee on this issue.

3. Direction Regarding Deduction Claimed under S.80G:
The AO disallowed the deduction of Rs. 1 lakh claimed under S.80G for a donation to TTD, as the assessee could not establish that the trust was exempt under S.80G. The CIT(A) directed the AO to allow the deduction if the assessee could produce the exemption certificate. The Tribunal found no infirmity in the CIT(A)'s directions, dismissing the ground.

4. Disallowance of Interest on Foreign Currency Convertible Bonds (FCCB):
The AO disallowed Rs. 86,88,000 claimed as interest on FCCBs, invoking S.40(a)(ia) due to non-deduction of tax at source under S.195. The CIT(A) upheld the disallowance. The assessee argued that the payments were made outside India to non-residents, thus S.195 did not apply. The Tribunal agreed, noting that the bonds were raised and paid from a bank account abroad, and no part of the transaction took place in India. The Tribunal directed the AO to delete the disallowance.

5. Levy of Interest under S.234B and S.234C of the Act:
The assessee challenged the levy of interest under S.234B and S.234C, arguing that it paid tax under S.115JB. The Tribunal noted that the assessee had itself calculated interest under these sections in its return, and the interest computed by the AO was less than that calculated by the assessee. The Tribunal upheld the CIT(A)'s decision, declining to interfere.

Conclusion:
The appeal was partly allowed, with specific directions for reassessment and deletion of certain disallowances.

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