TaxTMI 
TaxTMI 
2018 (11) TMI 1413
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.... be urged at the time of hearing, the decision of the C1T(A) may be set aside and that of the AO restored." 2. The brief facts of the case are that the assessee company, which is engaged in the business of manufacturing sugar, chemical distilleries and generation of electricity, filed its return of income for AY 2012-13 declaring total income at Nil under normal provisions of the Act and Rs. 13,45,63,959 u/s 115JB of the Act. The case was selected for scrutiny and the assessment was completed u/s 143(3) on 29-03-2015 determining the total income at Rs.Nil after setting off brought forward business loss by making disallowance of Rs. 31,99,258 u/s 14A of the Act and disallowance of weighted deduction u/s 35(2AB) of the Act . The AO also determined book profit of Rs. 13,77,63,217 by making adjustments towards disallowance of expenses u/s 14A of the Act. 3. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has filed elaborate written submissions on the issue of disallowance of deduction claimed u/s 35(2AB) to argue that the assessee is eligible for deduction as its R&D facility has been approved by the competent author....
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....a) Ltd. 335 ITR 117 has observed that: "Para 2 The provision further states that i?i order to claim this weighted deduction, it is to be certified by the Competent Authority that the assessee had undertaken research and development activity. The competent authority in this behalf is Department of Scientific & Industrial Research (DSIR). The assessee had approached DSIR vide application dated loth January, 2005. The DSIR vide its letter dated 2^vd February, 2006 granted recognition of the in-house R&D facilities of the assessee company and also granted approval for the expenses incurred by the company on in-house R&D facility in prescribed form $CM by letter dated i8th September, 2006. The Assessing Officer, however, refused to accord the benefit of the aforesaid provisions of weighted deduction to the assessee on the ground that recognition and approval was given by the DSIR in February'/September 2006, i.e., in the next assessment year and, therefore, the assessee was not entitled to the benefit. The CIT(Appeal) accepted this view of the Assessing Officer and dismissed the appeal, however, the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") h....
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.... plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered Rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by Section 3$(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up research and development facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. jo. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other i....
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....the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered rule 6(5A) and Form No. sCM and come to the conclusion that a plain and harmonious reading of rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of "R & D" facility has to be allowed for weighted deduction as provided by section 3$(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R & D facility in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention....
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....ance amount of Rs. 31,99,2587- is disallowed and added back to the income of the appellant. 8.1 On the other hand the appellant submitted that the assessee company has disallowed Rs. 10,000/- u/s 14A of the IT Act considering that the tax free dividend income is only Rs. 3,945/-. The AO has worked out the disallowance u/s 14A r.w.r. 8D(a)(ii) at Rs. 32,09,258/-. The appellant received dividend income to the extent of Rs. 3,945/- and suo motto made disallowance of Rs. 10,000/-, whereas the AO has computed as per Rule 8D(2)(ii) of the IT Rules, 1962. It is submitted that in view of the various judicial pronouncements confirmed the fact that disallowance should not exceed the exempt income. Therefore, the disallowance to be restricted to the exempt income of Rs. 3>945/'- 8.2 I have carefully considered the rival submissions and fact of the case. The correct proposition and the various judicial pronouncements confirmed the fact that disallowance should not exceed the exempt income. However, since the appellant has already made suo motto disallowance of Rs. 10,000/-, whereas the AO is not required to make computation as per Rule 8D(2)(ii) of the IT Rules, ....
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....ible for weighted deduction in respect of expenditure incurred towards research and development activities. Therefore, there is no merit in the argument of the AO that there is no approval available for the impugned assessment year. The assessee, referring to the application filed for approval in form 3CK dated 19-11-2012 addressed to Secretary, Department of Scientific & Industrial Research, Government of India and also copy of approval granted in form 3CM dated 14-01-2013 submitted that although the letter specifically stated that the approval has been granted from 01-04-2012, the fact remains that the assessee was having approval for earlier period for which necessary evidence has been filed before the AO alongwith copies of report submitted to DSIR for financial year to prove expenditure incurred for R&D facility, copy of audit report of R&D expenses, copy of application filed in form 3CK. The assessee also relied upon various judicial precedents including the decision of Hon'ble Delhi High Court in the case of Sandan Vikas (India) Ltd 355 ITR 117 and Hon'ble Gujarat High Court in the case of CIT v. Claris Life Sciences Ltd. 326 ITR 251. Alternatively, the assessee further c....
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....les, 1962 prescribed the procedure for approval of R&D facility as per which assessee needs to file an application in Form 3CK alongwith the necessary details and the competent authority, after satisfying with the conditions prescribed under the Rule, shall issue Form 3CM approving the R&D facility. The Rule further prescribes that the competent authority shall submit its report in relation to the approval of R&D facility in Form 3CL to the Director General Income Tax (Exemption) within a prescribed time. Unless the R&D facility is approved by the competent authority, the assessee shall not be eligible for weighted direction u/s 35(2AB) of the Act. In this case, on perusal of facts available on record, it is abundantly clear that the competent authority has categorically stated that the assessee's R&D facility had not been approved for the impugned assessment year, in a reply filed to the AO, in response to notice issued u/s 133(6). Therefore, we are of the considered view that the assessee is not eligible for weighted deduction u/s 35(2AB) in respect of R&D expenditure. 9. Coming the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Del....
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....s capital expenditure, we direct the AO to verify the nature of expenditure incurred and allow depreciation as per law. 11. The next issue that came up for our consideration is disallowance of expenses incurred in relation to exempt income. During the year under consideration, the assessee has earned dividend income of Rs. 3,945 which was claimed as exempt u/s 10(34) of the Income-tax Act, 1961. The assessee also made suo moto disallowance of Rs. 10,000 towards expenditure incurred in relation to exempt income. The AO has determined disallowance of Rs. 32,09,258 u/r 8D(2)(ii) & 8D(2) (iii) on the ground that from the assessment year 2008-09 onwards disallowance contemplated u/s 14A shall be worked out as per the prescribed method provided under rule 8D of I.T. Rules, 1962. It is the contention of the assessee that disallowance contemplated u/s 14A in any way cannot swallow the entire exempt income of the assessee and this legal position is reiterated by various High Courts, including the Hon'ble Delhi High Court in the case of Cheminvest Ltd vs CIT (2015) 378 ITR 33 (Del) wherein it was held that disallowance contemplated u/s 14A cannot exceed exempt income. 12. We have he....