AI Drafter 
TaxTMI 
TaxTMI 
2019 (10) TMI 134
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....ic Research in the in house R&D facility approved by the Prescribed Authority being Department of Industrial and Scientific Research. 1.3 Your appellant Prays that, the order of the Honourable CIT (Appeals) be reversed and deduction as claimed by Your appellant u/s 35(2AB) be granted in full. Depreciation in respect of Opening W.D.V. of Building on account of depreciation disallowed by AO from AY 2004-05 onwards. 2.1 The Honourable CIT(Appeals) has not allowed the depreciation in respect of Building used for the purpose of business but disallowed by AO. From AY 2004- 05 onwards and effect for which was remained to be given. 2.3 Your appellant prays that the depreciation of the adjusted wdv of the opening block of the building on account of disallowance of depreciation in respect of user of building for business. Disallowance of expenditure u/s 14A of Rs. 64 Lakhs as per Rule 3.1 The Honouarble CIT(Appeals) has erred in confirming the disallowance in respect of Rule 8D(2)(iii) being one half percentage of average value of investments , the income from which does not form part of the Total Income . The Honourable CIT (Appeals) has....
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....pany is engaged in the business of biotechnology or any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on 'Scientific Research' (not being expenditure in the nature of cost of any land or building) on in-house, research and development facility 'as approved by the prescribed authority/ such assessee would be entitled to a deduction of a sum equal to one and half times of the expenditure so-incurred.. Such expenditure incurred should be approved by the authority prescribed under section 35(2AB) read with rules framed thereunder. The authority prescribed to grant such approval under rule 6{1B) of the rules, 1961 is the Secretary, Department of Scientific and Industrial Research. As per DSIR regulation/ the Prescribed Authority would pass the order after verification of the expenditure. The appellant has not provided any details as to why the DSIR( ie Prescribed authority) has not allowed the expenditure and whether the appellant has raised any objection thereon. Therefore, I do not find any force in the submission of the appellant. Accordingly, grou....
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....at it had incurred in-house Scientific Research expenditure (capital and revenue). It had claimed weighted deduction u/s. 35(2)(AB) of the Act, as under: i. Revenue expenditure of Rs. 10,05,03,198/- @ 150% - Rs. 15,07,54,797/-. ii. Capital expenditure of Rs. 1,27,94,490/- @ 150% - Rs. 1,91,91,735/-. The assessee, thus, claimed deduction of a sum of Rs. 16,99,46,532/-. The details of this expenditure has been filed at Assessee's Paper Book (APB for short), pgs. 93 to 100. It is the claim of the assessee that this expenditure was deductible u/s.35(2AB) of the Act in computing the total income @ 150% of the actual expenditure. The expenditure was incurred for the Kanjurmarg unit of the company; rather, the unit stood approved by the DSIR, in Form No. 3CM, as on 28.08.2008 (APB, pg. 88), as per the requirements of section 35(2AB) of the Act for the period from 01.04.2007 to 31.03.2009. The assessee's Auditor duly certified the genuineness of such expenditure and its eligibility for weighted deduction u/s. 35(2)(AB), as available at APB pgs. 93 to 100, as also by the tax auditor, as evident from APB pgs. 91 ^92. 7. It was the action of the DSIR in issuing Form No....
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....hall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such form and within such time as may be prescribed. (5) [***] (6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia) of sub-section (1) in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2008. 9. The operative phrase here is "on in-house research and development facility as approved by the prescribed authority .......", the word "facility" has been hereby show us to emphasis the point that it is the unit which requires approval of the prescribed authority under this provision. Further, in the memorandum, explaining the provision of section ....
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....) of the Act on the summon that the prescribed authority had approved the part of the expenditure in Form No. 3CL. 12. It would also be apt to reproduce here-under the provisions substituted in clause (b) of sub rule (7A) of Rule 6, as brought in by the amendment effective from 01.07.2016 as above: "The prescribed authority shall furnish electronically its report,- (i) in relation to the approval of the in-house research and development facility in Part A of Room No. 3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Income Tax Act, 1961 in Part B of Form No. 3CL." 13. Hitherto, the provision was as follows: "The prescribed authority shall submit its report in relation to the approval of in-house facility and development facility in Form No. 3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval." The above also makes it amply clear that prior to the amendment, i.e., upto 30.06.2016, it was not required to quantify the expenditure and it was only w.e.f. 01.07.2016 that this....
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....t in ground no. 1 raised by the assessee, the same is hereby accepted to the reversing order passed by the ld. CIT(A) on this issue and deleting the disallowance of Rs. 42,52,032/-, made u/s. 35(2AB) of the Act. 18. So far as regarding ground no. 2, the A.O. did not allow the deprecation to the assessee on higher revised opening WDV of the building, which, as per the assessee was required to be increased, by revising it on account of disallowance of depreciation in the past, particularly for A.Ys. 2004-05 to 2008-09, aggregating to Rs. 1,90,42,120/- which stands allowed by the tribunal vide order (APB pgs. 109 to 111) passed in ITA No. 5295/Mum/2017. 19. The ld. CIT(A), by virtue of the impugned order, directed the A.O. to allow the claim for the depreciation on revised opening WDV, rather than, granting the relief to the assessee himself. 20. The grievance of the assessee is that the A.O. disputed the directions of the ld. CIT(A), while passing the order (APB pg. 286) dated 08.02.2018, for giving effect to the ld. CIT(A)'s order, failed to upwardly revise the opening WDV and to allow the higher depreciation to the assessee. The department, per contra, has placed strong re....
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....er been pleaded that since the ITAT order for A.Ys. 2004-05 to 2007-08 is dated 28.03.2012, whereas the assessee filed its return of income on 28.09.2009, there was no occasion for the assessee to have adjusted the opening WDV for claiming the higher depreciation in the return of income itself. 24. The fact that the tribunal order for A.Ys. 2004-05 to 2007-08 confirming the assessment orders for these years, is dated 28.03.2012, which falls much later within the date of the filing of the return by the assessee, i.e., on 28.09.2009, cannot be disputed. That being so obviously, the assessee was not in a position to claim higher depreciation in the return of income by adjusting the opening WDV. There is no provision in law pointed out to us for habiting the assessee from making the claim of such like the present one in the assessment proceedings. Rather, it stands well settled that the claims of depreciation need must be allowed by the A.O. irrespective of whether the assessee has himself made such claim or not. However, there is no dispute about the entitlement of the assessee to claim of the depreciation. The A.O. ought to have allowed the higher depreciation on the direction ....
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....Rule 8D(2) (iii) of the Act. Accordingly, ground no. 5 of the appeal is partly allowed. 26. Challenging the order passed by the ld. CIT(A) on this issue, the ld. Counsel of the assessee has contended that the ld. CIT(A) has erred in confirming the disallowance in respect of Rule 8D(2)(iii) being one half percentage of average value of investments, the income from which does not form part of the total income of the assessee; that the ld. CIT(A) has confirmed the disallowance based on the inference that the assessee has incurred administrative expenses which were composite and divisible and that, hence, the provision of Rule 8D(2)(iii) were applicable; that the assessee had submitted the amount of actual expenditure incurred for earning the exempt income, and that the disallowance ought to be restricted to the same in terms of section 14(1) of the Act, without referring to the provisions of Rule 8D(2)(iii) of the Rules. It has further been contended that the assessee company has not incurred any expenditure for earning the exempt income which is directly credited electronically to the bank account of the company and the investment is managed by the Managers of Mutual Funds, to who....
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....hanna vs. ACIT 953 ITR 2015 (Del) ii. Daga Global, 46 ITR (T) 70 (Mum) iii. Taikisha Engineering India Ltd. 370 ITR 338 (Bom) iv. India Advantage Securities Ltd. 380 ITR 471 (Bom) v. Accel Frontline Ltd. 46 ITR (T) 38 (Chennai-Trib) 27. As a without prejudice argument, the assessee states that the average investments of Rs. 128.54 crores, adopted by the A.O./ld. CIT(A) should be reduced by following: a) The investments of Rs. 163.62 crores in Indian and Foreign Subsidiaries, as stands accepted by the ITAT in its order (APB pg. 147) dated 17.10.2014, passed for A.Y. 2008-09, in the assessee's case, in ITA Nos. 6277 & 6167/Mum/2012. b) The investment of Rs. 30.14 crores in units of debt funds, the income whereof was otherwise liable to taxation under the head of capital gains, which income was not exempt, either u/s.10(38) or section 10(35), or otherwise. 28. As a further alternative, the assessee averse that the average investments of Rs. 128.54 crores adopted by the A.O. for applying sub clause (iii) of Rule 8D(2) should be reduced by, firstly, investments aggregating to Rs. 18.89 crores, on which no exempt income was rece....
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....tead of he erroneously assumed that such investments were made wholly out of borrowed funds; that as such, the disallowance requires deletion. Reference has been made to these decisions: • K. Raheja Corporation P. Limited • Minda Investment Ltd. 138 TTJ 240 (Delhi) (2011) • Maharashtra Seamless Ltd. 138 TTJ 244 (Delhi) (2011) • SIL Investment Ltd. 54 SOT 54 (Delhi) (2012) 31. The ld. Counsel of the assessee has contended that last but not the least, without prejudice, the disallowance ought to be, if at all, sustained to the expenditure actually incurred, which is an amount of Rs. 7,91,181/- paid as salary to the treasury Manager. For this, reliance has been placed on Gillette Group India (P.) Ltd. (supra). 32. On the other hand, the ld. DR placing heavy reliance on the order under appeal on this issue, has contended that it has not been disputed that the assessee has claimed various administrative expenditure, or that the assessee has not maintained separate books of account, due to which, it does stand substantiated that no expenditure whatsoever was infact incurred; that the administrative expenses incurred by the assesse....
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....considered for disallowance. This factual assertion of the assessee may be verified at the level of the A.O. and, thereafter, the disallowance may be computed, for which, the issue is remitted to the file of the A.O. Ground no. 3 is decided accordingly. ITA No. 5295/Mum/2017 - (Revenue's appeal) 36. In this appeal, which is the cross appeal of the department to the assessee's appeal, the following are the effective revised grounds which have been raised: "On the facts and circumstances of case and in law, the Ld.CIT(A) erred in' deleting the addition without appreciating the facts that the Company has been showing rent income from "CG House" as business income and claiming depreciation on part of that building utilised by the assessee which was not claimed in the return of income." 2. "On the facts and. circumstances of case and in law, the Ld.CIT(A) erred in entertaining the fresh claim of depreciation on CG House which was not claimed by the assessee while filing its Return of Income when the CIT(A) has no power to do so in light of Hon'ble Supreme Court decision in the case of Goetze (India) Ltd reported in 284 1TR 323(SQ." 3. "On the ....
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....e Rules, amounting to Rs. 72 lacs; that in this regard, the ld. CIT(A) has erred in holding that the provisions of Rule 8D(2)(ii) are not applicable; that in doing so, the ld. CIT(A) has failed to appreciate the fact that firstly, the assessee had failed to substantiate its assertion before the A.O.; that no interest bearing funds had been utilized, and that the investments had been made exclusively out of the revised funds owned by the assessee. 39. The ld. Counsel of the assessee has placed reliance on the impugned order in this regard also, the tribunal order (APB pgs. 152-163). The assessee's case for A.Y. 2008-09 has been pressed into service. 40. A sum of Rs. 72 lacs was disallowed by the A.O. under the provisions of section 14A of the Act read with Rule 8D(2)(ii) of the Rules. The ld. CIT(A) deleted the disallowance, observing as under: 10.2 I have carefully perused the assessment order and the submission of the appellant. It is seen that there was sufficient capital and reserve at the disposal of the appellant and this fact was not disputed by the AO. But in view of the decision of Hon'ble Jurisdictional High Court in the case of SBI DHRL Ltd ( 376 ITR 29....
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....tual fund is related to Equity Oriental Mutual Funds or Debt Oriented Mutual Funds; that the ld. CIT(A) has also erred in admitting the additional evidence in direct infractuous of Rule 46 of the I. T. Rules, such additional evidence being the claim of the assessee on account of dividend income u/s. 10(35) of the Act; that the ld. CIT(A) also erred in partly allowing the claim of debt compensation upto Rs. 12,25,000/-, as against the assessee's claim of Rs. 13,96,668/-, which itself shows that the fresh examination of facts was the prerequisite for such allowance; that on account of such allowing the assessee's claim concerning the debt compensation, again the ld. CIT(A) has erroneously violated the provisions of section 46A of the Income Tax Act, 1961. 44. On this issue, at the outset, it would be appropriate to record the observations made by the ld. CIT(A), as under : 12.1 I have carefully perused the assessment order and the submission of the appellant. The appellant has relied on the decision of Hon'ble juridication 1TAT in the case of APL India(L) Ltd 58 SOT 41 (URO) Mumbai) and also referred to the decision of Hon'ble ITAT Cochin in the case of Apollo Tyr....
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....far as admission of this ground was concerned, it was held that since this issue required a proper verification of facts and the relevant facts were not available on record or in the assessment proceedings, it could not be admitted. If one would admit the said ground, then it would go back to the Assessing Officer for verification and the order for directing the Assessing Officer to verify the facts and adjudicate the claim of the assessee would again be against the spirit of the Supreme Court's judgment. It was, therefore, to be held that the claim of the assessee with regard to doctrine of mutuality, could not be entertained at the instant stage. In the light of these facts, there was no infirmity in the order of the Commissioner (Appeals) and the same was to be confirmed. [Para 14],". Also in the case of Orissa Rural Housing Development Corpn. Ltd. reported at 17 taxmann.com 186 (Orissa), wherein it is held that "Whether an assessee can revise his return of income by way of filing a revised statement of income after filing original return other than by way of filing revised return as contemplated under section 139(5)? it is quite possible and natural that i....
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....ccepted, then the very purpose of enacting section 139(5) for filing revised return shall be frustrated and provision of said section becomes redundant. During the relevant time, as the assessee had maintained the accounts on mercantile basis, it was bound to file the returns on that basis, [Para 15] The Assessing Officer has no power to entertain fresh claim made by the assessee after filing of the original return otherthan by filing of revised return. [Para 16]" In view of the decision referred by the appellant and as noted above, I am of the considered view that if the mistake in apparently verifiable and does not require any in depth verification , investigation, then the claim should be entertained. In the instant case the AO has not verified the claim of the appellant, the appellant has submitted the copy of mutual fund statement from which it s apparently verifiable that the dividend earned from mutual funds are exempt income. Therefore, AO is directed to allow the claim of the appellant. With respect to the claim of death compensation, the claim is verifiable relating to Rs. 12,25,000/- and not Rs. Rs. 13,40,080/- as claimed. The copy of ....