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TaxTMI 
TaxTMI 
TaxTMI 
2012 (2) TMI 405
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.... as eligible project under section 35(2AA), deduction is being claimed at 100% of the amount contributed. Enhanced deduction will be claimed after receipt of approval from specified authority". Further, he noticed that in Annexure-3 to the audited accounts, the auditors had given a note as under :- "Approval under section 35(2AA) is awaited. As and when received, company will be entitled to a deduction of 125% of the contribution made". He noticed that though no approval from the specified authority was received, still Assessing Officer allowed the entire amount claimed by the assessee. He pointed out that since the project had not been approved by the prescribed authority, no deduction under section 35(2AA) was allowable. In view of the above facts, he concluded that since the assessee had made the claim only under section 35(2AA), the allowance of any such claim in the absence of requisite approval was erroneous and prejudicial to the interests of revenue. Accordingly, he issued notice to the assessee dated 26.03.2009 contained at pages 8-9 of the paper book, which reads as under :- "The assessment in this case was made under section 143(3) on 19.12.2007 on a loss of Rs.20,11....
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.... and remitted the issue back to the files of the CIT(A) against whose order the appeal to the ITAT lay, for reconsidering the issue since it had not been raised before him [the CIT(A)] earlier and to decide it on merits. 3. In view of this, proceedings u/s 263 would not lie considering that the issue had been decided in appeal and hence excluded from the purview of Sec. 263 by virtue of clause (C) of explanation to Sec. 263(1). 3.1. Ld. CIT after considering the assessee's submissions rejected the same for the following reasons :- (1) The claim made in the return of income was under section 35(2AA) and not under section 35(1)(i) and even section 35(1)(ii) would not be applicable to it. (2) Section 35(1)(i) relates only to expenditure directly incurred by the assessee, excluding capital expenditure, for the purpose of scientific research related to its business, whereas section 35(1)(ii) as also 35(2AA) clearly relate to expenditure being donation to other institutions engaged in scientific research. (3) The assessee never made any claim under section 35(1)(i) before the Assessing Officer. Therefore, in view of the decision of the Hon'ble Supreme Court in the case of Goetze Ind....
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.... to point out that while computing the income contribution to IIT, Chennai of Rs.1,43,00,000/- was first added to the business income and thereafter at page 4, deduction was claimed by giving following narration :- '(a) amount paid to IIT, Chennai in nature of scientific research expenditure Rs.1,43,00,000/-'; The following note was also appended in this regard, which is at page 7 of the said computation, the said note reads as under :- "Company has paid Rs.143 lacs to IIT, Chennai for scientific research project. The company is entitled to a deduction of 125% of the amount contributed under section 35(2AA) of the Income Tax Act, 1961. Pending receipt of approval as eligible project under section 35(2AA), deduction is being claimed @100% of the amount contributed. Enhanced deduction will be claimed after receipt of approval from specified authority". With reference to these factual aspects, ld. counsel for the assessee submitted that the assessee had claimed only 100% deduction of the amount paid to IIT, Chennai in nature of scientific research expenditure and not weighted deduction. Ld. counsel submitted that all the information in this regard was duly disclosed in the return.....
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...., the learned counsel requested to admission of the additional grounds referred to above. On merit of the grounds, the learned counsel submitted that the Hon'ble Bombay High Court in the case of Tata Chemicals Ltd. -vs.- CIT [195 ITR 561] has decided the issue in faovur of the assessee. The ld. D.R. did not raise any serious objection to the admission of the additional grounds. 5.2. After hearing the parties we find that the additional grounds raised are legal grounds and no new facts are involved in them. Therefore, we admit the same for adjudication. However, we find that these grounds were not raised before the CIT(A.). Therefore, to meet the ends of justice, we sent back these additional grounds to the file of CIT(A.) to enable him to decide the same in accordance with law and after allowing opportunity of being heard to the assessee". Ld. counsel submitted that this ground was admitted by the Tribunal vide its order dated 29.10.2009 and, therefore, when ld CIT passed the order under section 263 on 04.03.2010, the said order was available to ld. CIT. Therefore, ld. CIT wrongly directed the Assessing Officer to disallow the entire expenditure of Rs.1,43,00,000/-claimed by the ....
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....re are various conditions on fulfillment of which the assessee becomes entitle to weighted deduction. Ld. counsel submitted that the assessee did not claim weighted deduction under section 35(2AA). But only gave a note that the amount paid may qualify for the weighted deduction under section 35(2AA) of the Act if requisite approval was granted by the specified authority. Ld. counsel submitted that the mere disclosure of assessee's intention to claim deduction under section 35(2AA) at a future date, subject to fulfillment of statutory conditions, did not mean that in the return filed the assessee claimed weighted deduction under section 35(2AA). He, therefore, submitted that the ld. CIT was factually and legally wrong in stating that the assessee had actually claimed in the return deduction under section 35(2AA) of the Act. Ld. counsel submitted that the assessee had actually claimed 100% of Rs.1,43,00,000/- paid to IIT, Chennai for scientific research as per the provisions of section 35(1)(i) of the Act and that was only allowed by the Assessing Officer in the assessment order. Ld. counsel submitted that ld. CIT has wrongly observed that the claim was never made under section 35(1)....
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....the order of the Tribunal. Having considered the issue, the decision of the Tribunal was that the ld. CIT(Appeals) was the competent forum, who was to decide and adjudicate the assessee's claim for deduction under section 35(1)(ii) arising from the payment made to IIT, Chennai. Thus the Tribunal made the payment of Rs.1,43,00,000/- to IIT, Chennai a subject matter of specific provisions of section 35(1)(ii). In such circumstances, ld. counsel submitted that the Tribunal has decided that the ld. CIT was the competent forum to adjudicate the assessee's claim with reference to Rs.1,43,00,000/- paid to IIT, Chennai. Ld. CIT in its order under section 263 could not direct the Assessing Officer to adjudicate the issues arising from the very payment of Rs.1,43,00,000/-. The written submissions filed by assessee are placed on record. 6. Learned Departmental Representative submitted that Tribunal directed ld. CIT(Appeals) to examine the claim under section 35(1)(ii) of the Act by allowing additional ground raised before it, inter alia, observing that all the details were available in the assessment record. In this regard, ld. D.R. submitted that the assessment order was passed on 19.12.200....
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....r alia, held that a narrow construction of the power of the Commissioner under section 263 of the Income Tax Act, 1961 will defeat the purpose for which the provision was enacted. He, therefore, submitted that ld. CIT was well within his power in passing the order under section 263. Ld. counsel in the rejoinder submitted that Notification No. 287 dated 10.12.1973 was in public domain and, therefore, Assessing Officer is presumed to be in know of said notification. He, however, submitted that no approval under section 35(2AA) has been received. 7. We have considered the submissions of both the parties and have perused the records of the case. First of all, we proceed to decide the challenge to ld. CIT's jurisdiction under section 263 on the ground that Tribunal had allowed the assessee's additional ground and had directed ld. CIT(Appeals) to examine the claim under section 35(1)(ii) of the Act and, therefore, since Tribunal was seized with the issue regarding allowability of deduction under section 35(1)(ii) and had directed ld. CIT(Appeals) to examine the said plea, the ld. CIT's jurisdiction under section 263 stood curtailed. Under section 263 ld. CIT has jurisdiction to revise ....
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....ty, which was not the subject matter of consideration of assessment, then with reference to such issues, ld. CIT could not pass any order under section 263. Further, we are in agreement with the assessee's counsel that ld. CIT was not justified in directing the Assessing Officer to make the assessment de novo because he had not given any show-cause notice in regard to other items. In view of above discussion, we allow first issue raised by assessee vide Ground Nos.1 and 2 and hold that ld. CIT was not justified in canceling the assessment order and directing the Assessing Officer to redo the assessment. However, he had jurisdiction to revise the assessment order as per provisions contained under section 263. 8. Now coming to the issue regarding justifiability of order passed under section 263. In this regard we have to examine the order under section 263 in two categories; firstly with reference to the assessment order passed under section 143(3), and secondly the effect of Tribunal's order directing ld. CIT(Appeals) to examine the assessee's claim under section 35(1)(ii) of the Act as the same formed part of 'record' available to ld. CIT while passing order under section 263. 9....
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....early relate to expenditure being donation to other Institutions engaged in scientific research. He observed that since no expenditure was directly incurred by the assessee for scientific research and it only made a donation, the assessee was not entitled to any deduction under section 35(1)(i). Thus in substance, ld. CIT has observed that section 35(1)(i) was never claimed by the assessee. Now if we examine the facts of the case, we find that the assessee had claimed 100% of amount paid to IIT, Chennai in nature of scientific research expenditure. A rider was put by way of Note 9 to the computation that pending receipt of approval as eligible project under section 35(2AA), deduction was being claimed @ 100% of the amount contributed. Thus, admittedly the assessee had claimed this amount with reference to section 35(2AA). Now the question is whether sections 35(1)(i) and section 35(2AA) are mutually exclusive or section 35(2AA) encompasses in its ambit the provisions of section 35(1)(i) also. In order to appreciate this controversy, we reproduce hereunder the relevant sections :- Section 35(1)(i) : In respect of expenditure on scientific research, the following deductions shall be....
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....ority. Till the programme is approved by the prescribed authority, the amount simply was lying with the IIT but it could not be used for scientific research. Therefore, it could not be treated as being laid out or expended for the purposes of scientific research. It is true that for claiming deduction under section 35(1)(i), it is not necessary that the research must have been carried by the assessee himself. The deduction could be claimed even if the research was carried on by some other person for and on behalf of the assessee as was held by the Hon'ble Bombay High Court in the case of CIT -vs.- National Rayon Corporation Limited (1983) 140 ITR 143 (Bom.) and CIT -vs.- National Rayon Corporation (1985) 155 ITR 413. However, the basic condition for applicability of section 35(1)(i) is that the amount should have been laid out or expended on scientific research. In contra distinction to this, under section 35(2AA), as already observed by us, the amount can be held to be laid out or expended on scientific research only when the programme was duly approved by the prescribed authority in order to avoid multiplicity of proceedings. 10. At the time of hearing, ld. counsel for the asses....