2022 (8) TMI 18 - AT - Income Tax

Tribunal directs reassessment of disallowance under Section 14A & grants weighted deduction under Section 35(2AB)

The Tribunal partly allowed the assessee's appeals, directing the re-computation of disallowance under Section 14A read with Rule 8D and allowing the ... Disallowance u/s 14A r.w.r. 8D - assessee submits at the outset that his sole substantive argument is that both the lower authorities have wrongly computed the impugned disallowance thereby taking into consideration assessee’s entire investments than only those yielding exempt income(s) in the corresponding assessment year - HELD THAT:- We adopt judicial consistency to uphold the impugned disallowance in principle and direct the assessing authority to adjudicate the same as per law after considering only the dividend yielding investments in the relevant previous year(s). The assessee’s instant identical first substantive ground in all these cases is partly accepted in very terms. Disallowance of section 35(2AB) weighted deduction - HELD THAT:- We adopt judicial consistency [2020 (1) TMI 917 - ITAT PUNE] on the instant latter issue as well and accept the impugned section 32(2AB) weighted deduction claim. This latter substantive ground raised by the assessee succeeds. Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Disallowance of weighted deduction under Section 35(2AB).Issue-wise Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The primary issue in these appeals concerns the disallowance under Section 14A read with Rule 8D for the assessment years 2013-14, 2015-16, and 2016-17. The assessee contended that the lower authorities erred in computing the disallowance by considering the entire investments instead of only those yielding exempt income in the relevant assessment year. The assessee cited the Special Bench Order in ACIT Vs. Vireet Investments (P) Ltd. and ACB India Ltd. Vs. CIT in support of their argument. The Tribunal found merit in the assessee's argument, noting that the case law supports the re-computation of disallowance based on only dividend-yielding investments. The Tribunal also referenced a co-ordinate bench order in the assessee's own case, which issued similar directions to the assessing authority. Consequently, the Tribunal upheld the disallowance in principle but directed the assessing authority to re-compute it considering only the dividend-yielding investments for the relevant years. The identical first substantive ground in all these cases was partly accepted.2. Disallowance of weighted deduction under Section 35(2AB):The second issue involved the disallowance of weighted deduction under Section 35(2AB) for the amounts of Rs. 21,59,000/-, Rs. 4,95,000/-, and Rs. 1,23,97,000/- respectively for the three assessment years. The Assessing Officer had based the disallowance on the Department of Scientific and Industrial Research (DSIR)'s approval. The Tribunal noted that this issue was recurring between the parties and referenced a co-ordinate bench order for A.Y. 2014-15, which had deleted a similar disallowance. The Tribunal reiterated that once the R&D facility is recognized by DSIR, the role of the Assessing Officer is to allow the expenditure incurred on in-house R&D as a weighted deduction under Section 35(2AB). The Tribunal found no merit in the lower authorities' orders restricting the deduction based on DSIR's non-approval of certain expenditures, especially when the reasons for non-approval were not provided to the assessee. The Tribunal directed the Assessing Officer to allow the weighted deduction as claimed by the assessee. The identical second substantive ground raised by the assessee was allowed.Conclusion:The Tribunal partly allowed the assessee's appeals, directing the re-computation of disallowance under Section 14A read with Rule 8D and allowing the weighted deduction under Section 35(2AB) as claimed by the assessee. The order was pronounced in open court on July 7, 2022.