Tribunal decision: Appeals partly allowed, deductions disallowed, issues remanded for verification.

The Tribunal partly allowed the appeals for statistical purposes, remanding specific issues back to the AO for further verification. It upheld the disallowance of weighted deduction for AY 2012-13, deleted the disallowance under Section 14A, and remanded the reconciliation issue for AY 2012-13. The additional ground regarding cess was dismissed as withdrawn.

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Issues Involved:
1. Disallowance of weighted deduction on research & development expenditure under Section 35(2AB) of the Income Tax Act.
2. Disallowance of expenses related to exempt income under Section 14A of the Income Tax Act.
3. Addition due to non-reconciliation of income as per Form 26AS and income offered by the assessee.
4. Deduction of cess as an allowable expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Weighted Deduction on Research & Development Expenditure:
The first common issue concerns the disallowance of weighted deduction on research & development expenditure under Section 35(2AB) of the Income Tax Act for the assessment years 2012-13 and 2016-17. The Assessing Officer (AO) restricted the deduction based on the certificate issued by the Department of Scientific and Industrial Research (DSIR) in Form 3CL, leading to a disallowance of Rs. 1,10,54,154 for AY 2012-13 and Rs. 16,89,81,370 for AY 2016-17. The CIT(A) upheld the AO’s decision, stating that the AO is not prevented from acting on the DSIR report. The Tribunal noted that the issue was covered against the assessee in its own case for AY 2014-15 and other relevant case laws, and thus dismissed the appeal for AY 2012-13. For AY 2016-17, the Tribunal remitted the issue back to the AO to await the decision of DSIR, allowing the assessee to raise any issues before the AO.

2. Disallowance of Expenses Related to Exempt Income:
The next issue for AY 2012-13 involves the disallowance of expenses related to exempt income under Section 14A of the Act, read with Rule 8D of the Income Tax Rules, amounting to Rs. 8,06,000. The assessee argued that it had not earned or claimed any exempt income. The Tribunal noted that the issue is covered by the decision of the Hon’ble Supreme Court in the case of Chettinad Logistics (P.) Ltd., where it was held that Section 14A cannot be invoked if no exempt income was earned. Consequently, the Tribunal deleted the disallowance and directed the AO to recompute the income.

3. Addition Due to Non-Reconciliation of Income:
The third issue pertains to the addition of Rs. 16,77,044 due to non-reconciliation of income as per Form 26AS and the income offered by the assessee. The AO made the addition as the assessee did not reconcile the figures. The assessee argued that the difference was due to tax deducted at source (TDS) on service tax. The Tribunal remitted the issue back to the AO for verification of the reconciliation statement and Form 26AS, directing the AO to decide the claim after verification.

4. Deduction of Cess as an Allowable Expenditure:
The assessee raised an additional ground regarding the deduction of cess as an allowable expenditure. However, the assessee chose not to press this issue in light of the Finance Bill 2022, which clarified that cess is part of tax. Consequently, this ground was dismissed as withdrawn.

Conclusion:
The appeals were partly allowed for statistical purposes, with specific issues remanded back to the AO for further verification and decision. The Tribunal upheld the disallowance of weighted deduction for AY 2012-13, deleted the disallowance under Section 14A, and remanded the reconciliation issue for AY 2012-13 back to the AO. The additional ground regarding cess was dismissed as withdrawn.

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