Appeals partly allowed for assessee, Revenue appeals dismissed. AO to verify claims. Assessee to substantiate.

The appeals of the assessee were partly allowed for statistical purposes, and the appeals of the Revenue were dismissed. The Tribunal directed the AO to verify certain claims and certificates and to provide the assessee with an opportunity to substantiate their claims.

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Issues Involved:
1. Restriction of deduction u/s. 80HHC by invoking provisions of section 80IA(9).
2. Disallowance of weighted deduction u/s. 35(2AB).
3. Disallowance of depreciation on assets purchased from Pravin Metal Corporation.
4. Disallowance u/s. 14A.
5. Disallowance of depreciation claimed under Rule 5(2).
6. Levy of interest u/s 234B in respect of 14A disallowance.
7. Treatment of computer software expenses as capital in nature.
8. Disallowance of bad debts.
9. Interest on loans and advances given to subsidiary company.

Detailed Analysis:

1. Restriction of Deduction u/s. 80HHC by Invoking Provisions of Section 80IA(9):
The assessee contended that the AO exceeded his jurisdiction by restricting the deduction u/s. 80HHC while giving effect to the ITAT order. The Tribunal had previously remanded the issue to the AO to exclude only net other income after examining the nexus between the expenditure incurred and the income earned. The AO disallowed the claim due to lack of convincing evidence from the assessee. However, the AO further disallowed an additional amount by invoking section 80IA, which was beyond his jurisdiction. The Tribunal set aside this enhancement, stating that the AO exceeded his jurisdiction.

2. Disallowance of Weighted Deduction u/s. 35(2AB):
The CIT(A) upheld the disallowance of weighted deduction u/s. 35(2AB) on the ground that the agreement was not entered into between the appellant and DSIR. The Tribunal noted that in previous years, the assessee was granted recognition from DSIR, and the cut-off date mentioned in the certificate was irrelevant. The Tribunal restored the matter to the AO for verification of the certificate dated 05.08.2011 and allowed the claim if verified. The claim for the Thane unit was not allowable due to the absence of a certificate.

3. Disallowance of Depreciation on Assets Purchased from Pravin Metal Corporation:
The Tribunal restored the issue to the AO for re-examination, following the precedent set in previous assessment years. The AO was directed to decide the issue afresh after providing the assessee with an adequate opportunity to be heard.

4. Disallowance u/s. 14A:
The Tribunal restricted the disallowance u/s. 14A to 2% of the dividend income, consistent with its findings in earlier assessment years. The Tribunal noted that Rule 8D was not applicable for the relevant year (2005-06), as held by the Hon'ble Bombay High Court in "Godrej & Boyce Mfg. Co. Ltd. vs. DCIT".

5. Disallowance of Depreciation Claimed under Rule 5(2):
The AO and CIT(A) disallowed the claim due to the absence of a required certificate. The assessee later received the certificate dated 10.10.2011. The Tribunal restored the matter to the AO for verification of the certificate and allowed the claim if verified.

6. Levy of Interest u/s 234B in Respect of 14A Disallowance:
The Tribunal did not specifically address this issue, as it was related to the disallowance u/s. 14A, which was restricted to 2% of the dividend income.

7. Treatment of Computer Software Expenses as Capital in Nature:
The AO treated software expenses as capital expenditure and allowed depreciation at 60%. The Tribunal, after examining the invoices, found that the software was for limited use and did not provide long-term enduring benefits. The Tribunal directed that the software expenses be treated as revenue in nature.

8. Disallowance of Bad Debts:
The AO disallowed the claim for bad debts, but the CIT(A) deleted the disallowance based on the Supreme Court's decision in "TRF Limited vs. CIT", which stated that it is sufficient if the bad debt is written off as irrecoverable in the accounts. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee, as a prudent businessman, decides the recoverability of debts.

9. Interest on Loans and Advances Given to Subsidiary Company:
The AO added notional interest income to the assessee's income, but the CIT(A) deleted the disallowance, relying on previous orders. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient own funds and that the advances were made out of commercial expediency, referencing the Bombay High Court decision in "Reliance Utilities".

Conclusion:
The appeals of the assessee were partly allowed for statistical purposes, and the appeals of the Revenue were dismissed. The Tribunal directed the AO to verify certain claims and certificates and to provide the assessee with an opportunity to substantiate their claims. The order was pronounced in the open court on 06.02.2015.

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