2021 (2) TMI 848 - AT - Income Tax

Tribunal upholds assessee's appeal, dismissing revenue's claims for multiple assessment years.

The Tribunal dismissed all appeals filed by the revenue for Assessment Years 2011-12, 2012-13, and 2013-14. The Coordinate Benches' decisions in favor of ... Disallowance u/s 14A r.w.r. 8D - HELD THAT:- As decided in own case [2019 (10) TMI 987 - ITAT MUMBAI] if there is no exempt income there cannot be any disallowance. Respectfully following the said decision, we direct the Assessing Officer to delete the disallowance made u/s. 14A of the Act. Ground raised by the assessee is allowed. Upward adjust of interest on Share Application Money to RLSI and RLSBV through which share capital was subscribed - HELD THAT:- As decided in own case [2019 (10) TMI 987 - ITAT MUMBAI] revenue has raised grounds on upward adjustment of interest on optionally convertible loan given to its subsidiaries, the coordinate bench in assessee’s own case for AY 2009-10 and AY 2010-11 adjudicated in favour of the assessee, when the loan was subsequently converted into share capital, the interest adjustment cannot be made. Hence, These issues are settled in favour of the assessee. Disallowance of weighted deduction u/s 35(2AB) due to short approval in Form 3CL - HELD THAT:- Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) - We reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB). Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Upward adjustment of interest on Share Application Money.3. Disallowance of weighted deduction under Section 35(2AB) due to short approval in Form 3CL.Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:Revenue’s Grounds:The revenue contended that the Ld. CIT(A) erred in disallowing a sum of Rs. 86,34,268/- under Section 14A of the IT Act read with Rule 8D(2) of the Income Tax Rules, 1962.Tribunal’s Findings:The Tribunal noted that the identical issue had already been decided in favor of the assessee by the Coordinate Bench of ITAT in the assessee’s own case for Assessment Years 2009-10 and 2010-11. The Tribunal referenced the decisions of the Hon'ble Delhi High Court in Joint Investments Pvt. Ltd. v. CIT and Cheminvest Limited v. CIT, which held that disallowance under Section 14A should not exceed the exempt income. The Hon'ble Supreme Court dismissed the SLP filed by the Revenue against these decisions. Additionally, the Hon'ble Bombay High Court in Pr.CIT v. M/s. Ballarpur Industries Limited affirmed that if there is no exempt income, there cannot be any disallowance under Section 14A. Therefore, the Tribunal directed the Assessing Officer to delete the disallowance made under Section 14A, dismissing the revenue’s ground.2. Upward Adjustment of Interest on Share Application Money:Revenue’s Grounds:The revenue argued that the Ld. CIT(A) erred in deleting the interest charged on loan by considering it as share capital issued, without appreciating that the share capital was issued on the last day of F.Y. 2010-11 and was outstanding as a loan throughout the year. They also contended that the self-serving agreement between related parties for not charging interest on optionally convertible loans should be ignored under Section 92F(ii).Tribunal’s Findings:The Tribunal found that the identical issue had been decided in favor of the assessee by the Coordinate Bench of ITAT in the assessee’s own case for Assessment Years 2009-10 and 2010-11. The Tribunal referenced the decisions of the Hon'ble Bombay High Court in Director of Income-tax v. Besix Kier Dabhol SA and PCIT v. Aegis Limited, which held that recharacterization of transactions is not permitted in the absence of specific provisions under the Act. The Tribunal noted that the TPO had recharacterized the transaction of investment in preference shares into a loan, which is not permissible. Therefore, the Tribunal directed the Assessing Officer to delete the adjustment made towards interest on subscription to share capital of AEs, dismissing the revenue’s grounds.3. Disallowance of Weighted Deduction under Section 35(2AB) due to Short Approval in Form 3CL:Assessee’s Grounds:The assessee contended that the Ld. CIT(A) erred in confirming the disallowance under Section 35(2AB) of Rs. 21,17,794/- by the AO, relying upon Form 3CL issued by the Department of Scientific and Industrial Research (DSIR). They argued that once the R&D facility was approved by DSIR, the expenses incurred should be allowed under Section 35(2AB).Tribunal’s Findings:The Tribunal noted that the identical issue had been decided in favor of the assessee by the Coordinate Bench of ITAT in the case of Glenmark Pharmaceuticals Ltd. v. ACIT and other similar cases. The Tribunal referenced the decision in Cummins India Ltd. v. DCIT, which held that prior to the amendment in 2016, DSIR was not required to approve the quantum of expenditure. The Tribunal emphasized that once the R&D facility is approved, the entire expenditure incurred should be allowed for weighted deduction under Section 35(2AB). Therefore, the Tribunal directed the Assessing Officer to allow the deduction claimed by the assessee, allowing the assessee’s ground.Conclusion:The Tribunal dismissed all the appeals filed by the revenue for Assessment Years 2011-12, 2012-13, and 2013-14. The COs filed by the assessee for Assessment Years 2011-12 and 2013-14 were allowed, and the appeal filed by the assessee for Assessment Year 2012-13 was also allowed.