Tribunal Ruling: Business Expenses Allowed, Interest Disallowance Referred, Addition Deletion Upheld

The Tribunal allowed the assessee's appeal for AY 2014-15 regarding disallowance of expenses related to Bio-technology R & D, citing the expenses as allowable business deductions under Sec. 37(1). For AY 2015-16, the Tribunal directed a fresh adjudication on interest disallowance u/s 36(1)(iii) related to interest-free loans. The deletion of addition made u/s 2(22)(e) for AY 2014-15 was upheld, dismissing the revenue's appeal. The order was pronounced on 18th November 2022.

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Issues:
1. Disallowance of expenses relating to Bio-technology R & D.
2. Interest disallowance u/s 36(1)(iii).
3. Deletion of addition made u/s 2(22)(e).

Issue 1 - Disallowance of expenses relating to Bio-technology R & D:
The assessee appealed for AY 2014-15 & 2015-16 regarding disallowance of expenses related to Bio-technology R & D. The Tribunal noted delay in appeals due to the Covid-19 lockdown and condoned the delay. The issue was recurring and had been decided in favor of the assessee for AY 2013-14. The Tribunal examined the approval obtained by the assessee for in-house R&D activities and recognized that the expenses incurred were predominantly revenue in nature, thus allowable as business deductions under Sec. 37(1). The Tribunal also highlighted that the assessee had already commenced its business, and the disallowance made by the lower authorities was deemed unsustainable in law. Consequently, the disallowance was deleted for both years.

Issue 2 - Interest disallowance u/s 36(1)(iii):
In AY 2015-16, the assessee challenged the disallowance of interest under Sec. 36(1)(iii) related to interest-free loans advanced to directors/relatives. The AO disallowed a proportionate interest amount, which was upheld by the CIT(A). The Tribunal, however, directed a fresh adjudication by the AO, instructing the assessee to substantiate its claim that the loans were advanced from own interest-free funds. This ground was allowed for statistical purposes, and the appeal for AY 2015-16 was partly allowed.

Issue 3 - Deletion of addition made u/s 2(22)(e):
The revenue's appeal for AY 2014-15 focused on the deletion of addition under Sec. 2(22)(e) concerning interest-free advances received from certain entities. The AO treated the advances as deemed dividends, but the CIT(A) deleted the addition, citing the assessee's non-shareholder status in those entities. The Tribunal upheld the CIT(A)'s decision, emphasizing that no fault was found in the impugned order, leading to the dismissal of the revenue's appeal.

In conclusion, the Tribunal allowed the assessee's appeal for AY 2014-15, partly allowed the appeal for AY 2015-16, and dismissed the revenue's appeal for AY 2014-15. The order was pronounced on 18th November 2022.

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