TaxTMI 
TaxTMI 
TaxTMI 
2020 (3) TMI 422
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....ainst these appeals filed by the Revenue, the assessee has filed cross objections in AY 2013 14 & 2014-15. These appeals and cross objections involve similar issues and were heard together and therefore, for the sake of convenience, a common and consolidated order is being passed. 2. Grounds of appeal taken by the assessee as well as by the Revenue including additional grounds of appeal are reproduced below: ITA No. 454/Ahd/2017 - A.Y. 2011-12 (Assessee's appeal) 3. Grounds of appeal raised by the assessee read as under: "1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer of a sum of Rs. 22,32,326 being weighted deduction claimed u/s.35(2AB) pertaining to contract labour expenditure, professional fees and GET salary. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in not considering at all the additional claim of the appellant-company for deduction of Rs. 10,71,019 u/s.35(2AB) in respect of domestic travel expenses incurred for the purpose of in-house research and development facility as approved by the Department of Scientific and Industrial Research (DSIR....
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..... CIT (2009) 183 Taxmann 349 (SC) that such receipts do not form part of the net profit of the eligible business undertaking for the purpose of section 80IB of the Act?" ITA No. 773/Ahd/2018 - A.Y. 2012-13 (Assessee's appeal) 7. Ground of appeal raised by the assessee reads as under: "1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer of a sum of Rs. 12,06,000 being weighted deduction claimed u/s.35(2AB) pertaining to contract labour expenditure and GET salary." 8. Additional grounds raised by the assessee read as under: "1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the alternate ground No.4.2 of the appellant to treat excise duty refund as capital receipt. 2. On the facts and in the circumstances of the case it is now submitted that the amount of refund of excise duty is a capital receipt and same needs to be reduced from the profit as per profit and loss account while calculating book profit u/s 115JB of the Act." ITA No. 895/Ahd/2018 - A.Y. 2012-13 (Revenue's appeal) 9. Grounds of appeal raised by the Revenue read as under: "1. T....
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....business undertaking for the purpose of section 80IB of the Act." C.O. No. 45/Ahd/2019 - A.Y. 2013-14 11. Grounds of appeal raised by the assessee read as under: "1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance of weighted deduction of Rs. 3,09,000 claimed by the Respondent-company u/s.35(2AB) of the I.T. Act. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming addition of Rs. 2,08,126 being Employees' contribution to ESI on the ground that the same was paid beyond the due date prescribed under the ESI Act even though the payment was made within the time limit of Section 139(1) of the I.T. Act." 12. Additional grounds raised by the assessee in cross objection read as under: "1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the alternate ground No.4.2 of the respondent to treat excise duty refund as capital receipt. 2. On the facts and in the circumstances of the case it is now submitted that the amount of refund of excise duty is a capital receipt and same needs to be reduced from the profit as per profit and loss account wh....
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....ing to contract labour, professional fees and GET salary was not allowable as the DSIR had excluded the same for allowance under s.35(2AB) of the Act. The learned AR in this respect submitted that once the facility of in-house R&D is approved by DSIR the whole of the expenditure has to be allowed and in this respect relied on the judgment of Hon'ble Gujarat High Court in the case of Claries Lifescience Ltd. 326 ITR 251 (Guj) and further relied on the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Sun Pharmaceuticals Ltd. [2017] 85 taxmann.com 80 (Guj). The learned AR therefore argued and the disallowance sustained by learned CIT(A) is not justified and needs to be deleted. 16. As regards the claim of domestic travel expenses under s.35(2AB) of the Act amounting to Rs. 10,71,019/-, learned AR submitted that though such claim was not made before the AO but specific ground was taken before the learned CIT(A) to allow this expenditure also as part of deduction under s.35(2AB) of the Act but the learned CIT(A) did not make any finding. The learned AR submitted that since this expenditure also related to in-house R&D activities of the assessee, the same also needs to be a....
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....DR submitted that learned CIT(A0 has wrongly deleted the adjustment of TPO without properly appreciating the facts of the case. However, he fairly admitted that the learned CIT(A) had followed AYs. 2008-09 to 2010-11 for allowing relief to the assessee. 24. As regards ground no.2 regarding deletion of addition of capitalization of interest towards CWIP, the learned DR further placed his reliance on the order of the AO. 25. As regards ground no.3, the learned DR again relied upon the order of the AO who had rightly made disallowance of forex gain while allowing deduction claimed under s.80IB of the Act. 26. Regarding additional ground of appeal, the learned DR argued that the learned CIT(A) has wrongly treated excise duty refund to be eligible for deduction under s.80IB of the Act. 27. The learned AR, on the other hand, submitted that as regard the upward adjustment made by TPO, the learned CIT(A) has followed his earlier orders in AY 2008-09 to 2010-11 and since the facts and circumstances remained same, the same needs to be allowed. 28. As regard the second ground regarding capitalization of interest towards CWIP under s.36(1)(iii) of the Act, the learned AR submitted that as....
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.... to additional ground no.2 in ITA No. 454/Ahd/2017. 36. We have heard the rival parties and have gone through the material placed on record. 37. First we take up assessee's appeal in ITA No.454/Ahd/2017. ITA No. 454/Ahd/2017 - A.Y. 2011-12 (Assessee's appeal) 38. Ground No.1 is against the action of the learned CIT(A) by which he has confirmed the disallowance which the AO had made on account of rejection of claim made by the assessee on account of weighted deduction on account of certain expenditures. The AO on the one hand agreed that the contention of the assessee was correct that once in-house R&D was granted approval by DSIR, the whole of the capital and revenue expenditure for the whole of the year was allowable deduction. However, in the succeeding para, relying on the report of DSIR, the AO disallowed certain expenditures of contract labour, professional fees and GET salary by holding that these expenses were not approved by the DSIR as eligible for the claim of deduction under s.35(2AB) of the Act. Before the learned CIT(A), detailed submissions regarding eligibility of the assessee to claim weighted deduction for such expenditure was made. The individual expenses reg....
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....been introduced with a view to encourage research and development in industrial sector and nowhere it is mentioned that "R&D" facility is to be approved from a particular date. In other words, it is nowhere suggested that the expenses would be allowable as deduction only from the date of approval or only from a cutoff date, expenses incurred can be claimed as deduction. The Tribunal has further held that once the facility is approved, the entire expenditure so incurred has lo be allowed as provided by section 35(2AB). It is this order of the Tribunal against which the present Tax Appeal is filed by the revenue. 4. Mrs. Mauna M. Bhatt, learned Standing Counsel appearing for the revenue has submitted that section 35(2AB) is very clear and it says that expenditure incurred on inhouse research and development facility, as approved by the prescribed authorities, has to be allowed as deduction. She has further submitted that while granting approval, it was made clear that with effect from that date onwards, the approval had come into force and, hence, expenditures incurred prior to that date are not to be allowed. She has submitted that in any case, there is a question regarding inte....
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....his 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. 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 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that lo 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 of the Legislature by making above amendment is very clear that the entire expendit....
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....ce in immediately preceding year vide appellate order No. CIT(A)-VII/122/DC Cir.4/2014-15 and now CIT(A)-2/191/DC Cir.4/2014-15 dated 27/01/2016. The relevant findings given in that order ore reproduced hereunder- "6.2: Decision I have considered the facts of the case, Assessment Order and appellant's contentions. Since the identical issue was also involved in the case of the appellant in the A.Y. 2009-10 and the same has been decided in favour of the appellant. For ready reference the relevant part of the decision of the ld.CIT(A)-VIII, Ahmedabad vide its orderdtd.21.5.2014 is reproduced as under:- " I have considered the facts of the case, Assessment Order and appellant's contentions. While passing Appellate Order for A.Y 2008-09 vide Appeal No. CIT(A)-VIII/ACIT/Cir.4/436/11-12 dated 25-07-2013 similar issue was decided as under: "I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The A.O has held that the Excise Duly refund received by the appellant was not a profit derived from the business of industrial undertaking but it was a result of establishment of industrial undertaking in industrially backw....
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....ve already held that the excise duty referred is ptui ufihc business receipt and is entitled for deduction under section SO IB the alternatne ground taken by the appellant does not survive and need not be decided. The same are dismissed accordingly. As the observation of the Assessment order, argument of the appellant are similar to the previous assessment year, following the finding given for A. Y 2008-09 disallowance of deduction u/s 80IB on the exci.ie Duty made by A. O is directed to be deleted. Alternative grounds of appeal therefore, do not survive for decision and the same are dismissed accordingly." 6.3. As the observation of the Assessment order, argument of the appellant are similar to the previous assessment year, following the finding given for A.Yrs. 2009-10 & 2008-09 disallowance of deduction u/s 801B on the excise Duty made by A.O is directed to be deleted. Alternative grounds of appeal therefore, do not survive for decision and the same are dismissed accordingly," 7.4. In view of the above facts of the case, following the finding given for A. Ys. 2009-10 & 2008-09 and considering the fact that identical issue on similar facts has been decided by this office in....
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....T (2009) 317 ITR 218 in concluding the above excise refund to be not an income derived from the eligible industrial undertaking. We find that earlier co-ordinate bench in assessment year 2007-08(supra) had followed hon'ble Apex court's recent decision in CIT vs. Meghalaya Steel Ltd. Civil Appeal no.7622/2014 in holding that such a refund by way of an incentive subsidy results in reimbursement of cost of production as covered u/s.28 of the Act. The Revenue fails to rebut this factual and legal position. We therefore treat assessee's above excise refund component to be an income eligible for Section 80IB deduction." 37. In view of the above, we hold that the assessee is eligible for deduction u/s 80IB(4) of the Act in respect of excise duty refund. Accordingly, we do not find any reason to interfere with the order of the Ld. CIT(A)." 43. Therefore, once the excise duty refunds has been held to be arising from manufacturing activity and is included in the profits eligible to be exempt under s.80IB of the Act, the grievance of the assessee that such receipts should have been treated as capital receipt is contradictory as by including in the P&L account and allowing the b....
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....s decided by the Co-ordinate Bench of 1TAT in favour of the assesee and the addition was deleted following the order in Revenue's appeal for A.Y.2003-04 in ITA No.2281/Ahd/2007, while deciding the Revenue's appeal, the issue was decided by holding as under: "36. We have considered rived submissions and perused the material on record, and gone through the orders of the authorities below. We find that the issue regarding payment of royalty at the rate of 3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities, it was explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expenses from ex- factory sale value of the concerned products. It was also explained before the learned CIT(A) that if the effective rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e., parent company. In our considered opinion, only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex- factory sale value, without deducting various expenses, such as dealer commis....
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....ly considered the facts of the case, assessment order and submission made through statement of facts filed by the appellant. The AO has made the disallowance of the claim of deduction u/s.80IB in respect of the foreign exchange fluctuation gain earned by the appellant during the year. It has been held by him that the gain does not pertain to the business activity and was accordingly held to be income from other sources. 8.4. On going through the facts of the case, it is seen that the appellant's case is covered by the decision given by C1T(A) - VIII, Ahmedabad in appellant's own case for A. v. 2008-09 vide appellate order No.CIT(A)-VIII/ACIT/Cir.4/436/11-12 dated 25/07/2013. The relevant findings given in that order are reproduced hereunder:- "7.3 DECISION I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The A.O has made the addition on account of foreign exchange fluctuation gain earned by the appellant during the year. It has been held by him that the gain does not pertain to the business activity and was accordingly any income from other sources. Consequently the deduction under section 80 IB has b....
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....count of exchange rate fluctuation was liable to be allowed under section 80 IB. The following judgements support the view: - i. CIT Vs. M/s. Rachna Udhog 35 DTR 65 (Bom), ii. M/s Asia Pacific Marbles Pvt. Ltd. VS. DCIT ITA No.1217/Mum/2008 iii. CIT Vs M/s Syntel Ltd 2010-TIOL-76-HC-MUM-IT (Bombay HC) iv. Jay Chemicals ITA No.841/Ahd/2006 Dated 28/08/2009 In view of the above discussion, it is held that Foreign Exchange Fluctuation Gain has accrued due to the business activity of the eligible unit and accordingly the same should be considered as the profit of Jammu unit and is also eligible for deduction under section 80 IB. The ground of appeal is accordingly allowed." 8.5. In view of the above facts of the case and considering the fact that identical issue on similar facts has been decided by CIT(A) - VIII, Ahmedabad in appellant's own case for A. Y. 2008-09, and following the said decision in the year under consideration, the ground of appeal for this year is allowed." 50. In view of the above facts and circumstances and in view of judicial precedents, ground no.3 is also dismissed. 51. Now coming to additional ground taken by Revenue, we find that Hon'ble Tr....
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....Ahd/2019 - A.Y. 2013-14 61. Now coming to CO No.45/Ahd/2019 for AY 2013-14 filed by the assessee, we find that first ground relates to the action of learned CIT(A) whereby he has confirmed the disallowance of weighted deduction of Rs. 3,09,000/- claimed under s.35(2AB) of the Act. We find that learned CIT(A) while confirming the action of AO has followed his order in AY 2011-12 and has upheld the disallowance by holding as under: "4.3 I have carefully considered the facts of the case, assessment order and submission made through statement of facts filed by the appellant. The AO has made the disallowance of the excess weighted deduction claimed by the appellant u/s.35(2AB) of the I.T. Act, 1961 amounting to Rs. 3,09,000/- for the reason that the aforesaid expenditures were not approved by the DSIR in its certificate. 4.4. On going through the facts of the case, it is noted that similar issue on identical facts has been decided by this office in A. Y. 2011-12 vide appellate order dated 30/12/2016. The relevant findings given are reproduced hereunder:- 5.3. Decision: I have carefully considered the facts of the case, assessment order and submission made through statement of f....
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.... been noticed that the said order of approval of in-house R S. D facility u/s. 35(2AB), the DSIR in its order has specifically mentioned as under: "The above research and development facility is approved for the purpose of section 35(2AB) from 31/12/2010 up to 31/03/2012 subject of the conditions underlined therein." From the terms and conditions on which order of approval has been passed by the DSIR, it is apparent that the R & D facility have only been approved for the last quarter of the year only. Since the expenditure having incurred for the first 9 months totalling to Rs. 15,57,333/- no approval has been granted by the DSIR and hence, the appellant is not entitled to get the weighted deduction as per the provisions of section 35(2AB) of the Act. It has also been noticed that the case laws relied upon by the appellant are not identical on facts with the case of appellant and hence, cannot be blindly applied. Thus, the appellant was not entitled to get the weighted deduction of the R & D expenditure claimed by the appellant for which no approval has been granted by the DSIR although the claim was put up by the appellant for approval before it. Obviously, the DSIR has taken ....