Tribunal allows assessee's appeal on research expenditure, higher depreciation; dismisses Revenue's appeal on fresh claims

The Tribunal allowed the assessee's appeal by reversing the disallowance under section 35(2AB) for scientific research expenditure and directing the AO to allow higher depreciation. The disallowance under section 14A was remitted for verification. The Revenue's appeal was dismissed, upholding the CIT(A)'s directions on fresh claims and deletion of disallowance under Rule 8D(2)(ii).

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Issues Involved:
1. Disallowance of deduction under section 35(2AB) of Rs. 42,52,032.
2. Depreciation in respect of Opening W.D.V. of Building on account of depreciation disallowed by AO from AY 2004-05 onwards.
3. Disallowance of expenditure under section 14A of Rs. 64 Lakhs as per Rule 8D(2)(iii).

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 35(2AB) of Rs. 42,52,032:
The assessee claimed a weighted deduction under section 35(2AB) for scientific research expenditure. The AO disallowed Rs. 42,52,032 based on discrepancies between the claimed amount and the amount approved by the Department of Scientific and Industrial Research (DSIR) in Form No. 3CL. The CIT(A) confirmed the disallowance, noting that the appellant did not provide reasons for the DSIR's partial approval. The Tribunal found that section 35(2AB) requires approval for the R&D facility, not the quantum of expenditure. It referenced the case of Sun Pharmaceutical Industries Ltd., which held that prior to amendments effective from 01.07.2016, quantification of expenditure was not mandated. Therefore, the Tribunal reversed the CIT(A)'s order and deleted the disallowance, allowing the assessee's claim.

2. Depreciation in Respect of Opening W.D.V. of Building:
The AO did not allow depreciation on the revised opening WDV of the building, which the assessee claimed should be increased due to past disallowances from AYs 2004-05 to 2008-09. The CIT(A) directed the AO to allow the claim but did not grant the relief directly. The Tribunal observed that the assessee was entitled to higher depreciation due to the Tribunal's earlier orders confirming the disallowance of depreciation for those years. It directed the AO to revise the opening WDV and allow higher depreciation for the part of the building used for business purposes.

3. Disallowance of Expenditure under Section 14A of Rs. 64 Lakhs as per Rule 8D(2)(iii):
The AO disallowed Rs. 64 lakhs under section 14A read with Rule 8D(2)(iii), assuming administrative expenses were incurred for earning exempt income. The CIT(A) confirmed this disallowance. The Tribunal noted that the assessee maintained that no expenditure was incurred for earning exempt income, which was directly credited to the bank account. It found no specific finding by the AO regarding the incurrence of such expenditure. The Tribunal remitted the issue to the AO to verify the factual assertion and compute the disallowance accordingly, limiting it to the salary of the Treasury Manager if applicable.

Revenue’s Appeal:

1. Fresh Claim of Depreciation on CG House:
The Revenue contested the CIT(A)'s direction to allow the fresh claim of depreciation on CG House, which was not claimed in the original return. The Tribunal rejected this ground, aligning with its findings on the assessee's appeal regarding the same issue.

2. Disallowance under Rule 8D(2)(ii):
The Revenue challenged the deletion of Rs. 72 lakhs disallowance under Rule 8D(2)(ii). The CIT(A) had deleted it, presuming investments were made from non-interest-bearing funds as per jurisdictional High Court decisions. The Tribunal sent the issue back to the AO for re-evaluation in light of these decisions and the Tribunal’s order for AY 2008-09.

3. Fresh Claims of Dividend Income and Death Compensation:
The Revenue argued against the CIT(A) allowing fresh claims regarding dividend income under section 10(35) and death compensation, asserting that these claims required fresh examination of facts and violated Rule 46A. The Tribunal upheld the CIT(A)'s decision, noting that appellate authorities can entertain fresh claims if verifiable without in-depth investigation, as supported by various judicial precedents.

Conclusion:
The assessee's appeal was partly allowed, reversing the disallowance under section 35(2AB) and directing the AO to allow higher depreciation. The disallowance under section 14A was remitted for verification. The Revenue's appeal was dismissed, upholding the CIT(A)'s directions on fresh claims and deletion of disallowance under Rule 8D(2)(ii).

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