2019 (2) TMI 535 - HC - Income Tax

High Court upholds Tribunal decision on tax appeal, citing precedents on various issues.

The High Court dismissed the tax appeal, upholding the Tribunal's decision or citing precedents favoring the assessee on various issues, including ... Claim of deduction u/s 35(2AB) - as evident from the approval letters that the approval for the R&D activities were given in the subsequent Assessment Years and not for the assessment year under consideration - Held that:- We notice that several High Courts have held that such research and development activity once approved by the competent authority, the approval would relate back to the date of application. See COMMISSIONER OF INCOME-TAX VERSUS. CLARIS LIFESCIENCES LTD. [2008 (8) TMI 579 - GUJARAT HIGH COURT] Disallowance u/s 14A - Held that:- Perusal of the impugned judgment of the Tribunal would show that in addition to relying on the conclusion in case of this very assessee in earlier assessment year, the Tribunal further noted that during the year under consideration, no fresh investments were made by the assessee except for a small investment of ₹ 2.52 lakhs. Such being the fact, we do not see any error in the view of the Tribunal. This question is therefore not entertained. Deduction disallowance u/s 36(1)(iii) - whether should be allowed u/s 57(iii) of the I.T. Act when the primary motive of the assessee company is not earning income from other source? - Held that:- As he assessee had objected to the Revenue's proposal for disallowance of expenditure on the ground that there were sufficient interest free funds available with the assessee from which the investment was made. The assessee had raised an alternative contention that in any case the dividend to be received from such investment, was taxable and, therefore, the expenditure under Section 57(iii) of the Act should be granted. It is this alternative contention which the CIT(A) and the Tribunal finally accepted. The undisputed fact is that the dividend income at the hands of the assessee would be taxed. We, therefore, do not find any error in the view of the Tribunal except assessee's contention. This question is therefore not entertained. Issues involved:1. Deduction under Section 35(2AB) of the Income Tax Act2. Disallowance under Section 14A of the Income Tax Act3. Disallowance under Section 36(1)(va) of the Income Tax Act4. Computation of deduction under Section 80HHC of the Income Tax Act5. Disallowance under Section 36(1)(iii) of the Income Tax ActAnalysis:1. Deduction under Section 35(2AB) of the Income Tax Act:The issue raised by the Revenue pertains to the deduction under Section 35(2AB) concerning the approval for research and development activities. The Tribunal directed the Assessing Officer (AO) to grant the deduction, despite the approval being granted in subsequent assessment years. The High Court cited precedents where approval relates back to the date of application. As such, the objection by the Revenue was not entertained.2. Disallowance under Section 14A of the Income Tax Act:The Revenue raised concerns about disallowing expenditure under Section 14A of the Act. The Tribunal found no error in its decision as no fresh investments were made during the relevant year, except for a small amount. Citing the Tribunal's reasoning and the lack of new investments, the High Court upheld the Tribunal's decision and did not entertain this issue.3. Disallowance under Section 36(1)(va) of the Income Tax Act:The High Court noted that similar issues were considered in a previous appeal involving the same assessee, where the Revenue's appeal was dismissed. Consequently, the questions regarding disallowance under Section 36(1)(va) and the computation of deduction under Section 80HHC were not entertained in the current appeal.4. Disallowance under Section 36(1)(iii) of the Income Tax Act:Regarding the disallowance under Section 36(1)(iii) of the Act, the assessee argued against the Revenue's proposal, stating that there were sufficient interest-free funds available for the investments. The High Court agreed with the CIT(A) and the Tribunal's decision to grant the expenditure under Section 57(iii) of the Act, considering the taxable nature of the dividend income. The Court found no error in this view and dismissed the tax appeal accordingly.In conclusion, the High Court dismissed the tax appeal after addressing each issue raised by the Revenue, either by upholding the Tribunal's decision or citing previous judgments in favor of the assessee.