TaxTMI 
TaxTMI 
2020 (1) TMI 917
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....fter, assessment was framed u/s 143(3) of the Income tax Act, 1961 (hereinafter referred to as "the Act‟) vide order dated 25.12.2016 and the total income was determined at 4,66,86,12,800/- after making certain disallowances. Aggrieved by the order of Assessing Officer, assessee carried the matter before Ld.CIT(A), who vide order dated 10.03.2017 (in appeal No.CIT(A), Pune-1/10634/2016-17) has granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds:- The following grounds are taken without prejudice to each other - On facts and in law, 1.1 The learned Commissioner of Income Tax (Appeals) - 1, Pune erred in confirming the disallowance u/s 14A of Rs. 27,04,567/-, by applying Rule 8D over and above disallowance of Rs. 64,73,000/- already offered by the Appellant in its tax return while computing total income as per regular provisions of the Act and for the purpose of working out book profits u/s 115JB. The learned Commissioner of Income Tax (Appeals) - 1, Pune erred in not appreciating that there was no dominant and immediate connection between me expenditure ....
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....nabled the Assessing officer to disallow such weighted deduction based on such DSIR approval. 2.4 The learned Commissioner of Income Tax (Appeals) - 1, Pune erred in not appreciating that the DSIR was a competent authority only to approve the in-house R & D facility u/s. 35(2AB) and to decide whether and to what extent an activity constitutes scientific research u/s. 35(3) of the Income Tax Act 1961. The DSIR had no authority to approve or reject the expenses for the purposes of deduction u/s. 35(2AB) on an annual basis post approval of the in-house R & D Unit. 2.5 The learned Commissioner of Income Tax (Appeals) - 1, Pune erred in not appreciating that the Appellant Company had fulfilled all the prescribed conditions of Section 35(2AB) and therefore there was no reason to disallow any part of R & D expenses and weighted deduction claimed by the Appellant company. He erred in not relying on the ratio of various judgments relied upon by the Appellant Company 2.6 Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) - 1, Pune erred in not directing the assessing officer to make a reference to the DSIR as per the provisions of Sect....
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....ch the assessee has earned exempt income. He further submitted that if while computing the disallowance u/s 14A in line with the decision of Vireej Invests P. Ltd. (supra), the disallowance goes below the suo motu disallowance worked out by assessee, then assessee will not make a claim of adjustment / refund of the excess amount. 8. The ld. DR on the other hand supported the orders of Assessing Officer and CIT(A). 9. We have heard the rival submissions and perused the material on record. The issue in the ground Nos.1.1 to 1.4 is with respect to disallowance made u/s 14A of the Act read with 8D of the Rules. We find that identical issue arose before ITAT in assessee‟s own case in A.Y. 2012- 13 where Pune Tribunal in ITA No.805/PUN/2017, order dated 04.09.2019 has decided the issue in assessee‟s favour by observing as under:- "4. Both sides heard. Orders of the authorities below perused. In the appeal the sum and substance of the prayer of assessee with respect to ground No. 1 of the appeal is that disallowance u/s. 14A should be made only in respect of investments on which the assessee has earned dividend income. Undisputedly, the assessee has ear....
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.....1 to 2.6 is with respect to denial of claim of weighted deduction u/s 35(2AB) of the Act. 12. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed weighted deduction of Rs. 49,09,03,622/- u/s 35(2AB) of the Act in respect of its in-house R&D facility as approved by the Department of Scientific & Industrial Research (DSIR). The assessee was asked to furnish the details of expenditure incurred and the approval given by the DSIR. The Assessing Officer observed that the DSIR has not approved expenditure of Rs. 4.05 lakhs out of total expenditure of Rs. 2,454.52 lakhs claimed by the assessee. The assessee was asked to explain why proportionate deduction u/s 35(2AB) of the Act be not disallowed to the extent of the amount disallowed / not considered by the DSIR as a part of eligible expenditure on Research & Development activities of the company. The assessee made the submissions which were not found to be acceptable to the Assessing Officer. Accordingly, the Assessing Officer disallowed proportionate weighted deduction claimed u/s 35(2AB) of the Act of Rs. 4.05 lakhs and added the same to the total income of assessee. Aggrieved by ....
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....ssee on R&D facility especially once the said R&D facility has been recognized by DSIR. 17. We find that similar issue arose before the Pune Bench of Tribunal in the case of Cummins India Ltd. Vs. DCIT (supra) and the Tribunal noted the provisions of section 35(2AB) of the Act, the approval given by DSIR in Form No.3CL and consequent to the approval given, whether DSIR had any role in approving the expenditure claimed by assessee. The relevant findings of Tribunal are vide paras 38 to 46, which read as under:- "38. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against the claim of deduction under section 35(2AB) of the Act i.e. expenditure incurred on Research & Development activity. For computation of business income under section 35 of the Act, expenditure on scientific research is to be allowed on fulfillment of certain conditions which are enlisted in the said section. Under various subsections of section 35 of the Act, the conditions and the allowability of expenditure vary. Sub-section (1) to section 35 of the Act deals with expenditure on scientific research, not being in the nature of capital ex....
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....rity shall, if satisfied that the conditions provided in the rule and in sub-section (2AB) being fulfilled, pass an order in writing in form No.3CM. The proviso however lays down that reasonable opportunity of being heard is to be granted to the company before rejecting an application. So, the application has to be made under sub-rule (4) in form No.3CK and the prescribed authority has to pass an order in writing in form No.3CM. Sub-rule (7A) provides that the approval of expenditure under sub-section (2AB) of section 35 of the Act, shall be subject to the conditions that the facilities do not relate purely to market research, sales promotion, etc. Clause (b) to sub-rule (7A) at the relevant time provided that the prescribed authority shall submit its report in relation to the approval of inhouse R & D facility in form No.3CL to the DG (Income-tax Exemption) within sixty days of its granting approval. Under clause (c), the company at the relevant time had to maintain separate accounts for each approved facility, which had to be audited annually. Clause (b) to subrule (7A) has been substituted by IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016, under which the prescribed authorit....
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.... 9. The provisions nowhere suggest or imply that R&D facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that 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 r. 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 s. 35(2AB). The Tribunal has also considered the ....
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....nt to hold that the assessee had fulfilled the conditions laid down in the aforesaid provisions. 45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on inhouse R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 20....