AI Drafter 
TaxTMI 
TaxTMI 
2020 (3) TMI 422
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....y the Revenue in AYs. 2013-14 & 2014-15. Against 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 approve....
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....d. CIT(A) has grossly erred in law by not appreciating and applying the decision of the Hon'ble SC in the case of Liberty India vs. 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 calculat....
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....(A) has grossly erred in law by not appreciating and applying the decision of the Hon'ble SC in the case of Liberty India vs. CIT (2009) 183 Taxmarm 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." 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 t....
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....ct on account of in-house R & D (capital and revenue expenditure) to be considered for the whole of the year relying on the judgment of Hon'ble Gujarat High Court in the case of Claries Lifescience Ltd. 326 ITR 251 (Guj). It was submitted that in succeeding para the AO has held that a part of expenditure relating 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 spec....
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....as not made before the AO and therefore, the learned CIT(A) has rightly not adjudicated the same. 22. As regards the additional ground of appeal taken by the assessee, the learned DR relied the orders of the authorities below. 23. Arguing the appeal of the department in ITA No. 583/Ahd/2017 for AY 2011- 12, the learned 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 u....
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....s against the assessee. 35. As regards the arguments on CO No.54/Ahd/2019, the learned AR submitted that ground no.1 is similar to additional ground no.1 in ITA No.454/Ahd/2017 which is in not treating the excise duty as capital receipt and similarly ground no.2 regarding capital receipt to be reduced from profit under s.115JB of the Act is similar 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 expend....
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....curred before 27-2-2001. 3. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the CIT (Appeals), who upheld the action of the Assessing Officer. Being further aggrieved by the order of the CIT(Appcals), the assessee took up the matter before the Tribunal. The Tribunal adjudicated the whole issue and held that this section has 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 an....
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.... assessee. 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 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....
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....ission made through statement of facts filed by the appellant. The AO has held that the Excise Duty refund received by the appellant was not a profit derived trom the business of industrial undertaking, but it was o result of establishment of industrial undertaking in industrially backward area. On going through the facts of the case, if is seen that identical issue on similar facts has been decided in appellant's own case by this office 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....
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....d the issue in favour of the assessee. In view of the above mentioned discussion and the judicial pronouncements it is held that the excise duly referred is entitled for deduction under section 80 IB. The disallowance made by the A.O is directed to be deleted. The ground of appeal is accordingly allowed. The appellant has also raised two alternative grounds 7.1 and 7.2 in which it has been pleaded (hat the benefit of excise duty refund is capital in nature. Since I have 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 app....
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....and guidance from the order of this Tribunal in the case of M/s. Cadila Pharmaceuticals Ltd. Vs. DCIT in ITA No.1117/Ahd/2012 vide order dated 11/09/2017, wherein it was held as under: "21. The assessee's fifth substantive ground challenges Section 80IB deduction disallowance of Rs. 16,34,58,692/- out of total claim of Rs. 53,25,79,553/; as made by the lower authorities. The above disallowance figure involves excise duty refund amount of Rs. 8,12,71,702/-. The DRP quoted hon'ble apex court's decision in Liberty India vs. CIT (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 ....
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....e Co-ordinate Bench of the ITAT vide ITA No. 182, 216 & 1137/Ahd/2011 against the revenue pertaining to assessment year 2005-06 and 2006-07. The relevant part of the decision of the ITAT is reproduced as under:- "15. We have considered rival submissions and perused the material available record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that in ITA No. 2363/Ahd/2008 for A.Y.2004-05, similar issue was 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....
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....se of business. The learned CIT(A) has therefore rightly deleted the addition relying on various case laws noted by him in his order at page 51 to 55. The Revenue was not able to controvert the detailed findings of learned CIT(A) and therefore finding no infirmity in the order of learned CIT(A). Ground no.2 is dismissed. 49. As regards ground no.3 regarding allowing forex gain while calculating disallowance under s.80IB of the Act, we find that learned CIT(A) has followed his order in AY 2008-09 in ITA No. 2399/Ahd/2013 and has allowed relief to the assessee by holding as under: "8.3 Decision: 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 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) - ....
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....t is also noted that the AO while treating the fluctuation gain of the eligible unit as income from other sources there is the gain in the other unit which was not eligible for deduction has been taxed as business income. It is further observed that the appellant has been following the practice of showing the fluctuation gain or loss as profit or loss of the business. It has been further pointed out by the appellant that the appellant has incurred loss in the succeeding year which has been reduced from the profit of eligible unit. The appellant has rightly relied on several judgements of the ITAT and High Court wherein it has been held that the difference on account 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 acti....
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....strial undertaking, we find that this issue has also been decided by us in the departmental appeal in ITA No.583/Ahd/2017 for AY 2011-12 where the additional ground taken by the Revenue has been dismissed by us. 59. In view of the above, Revenue's appeal in ITA No.895/Ahd/2018 for AY 2012- 13 is dismissed. ITA No. 2603/Ahd/2017 - A.Y. 2013-14 (Revenue's appeal) 60. Now coming to appeal of the Revenue in ITA No.2603/Ahd/2017 for AY 2013 14. The two grounds of appeal are similar to ground no.1 of additional ground in ITA No.583/Ahd/2017. We have already dismissed the grounds of appeal in ITA No.583/Ahd/2017, therefore, respectfully following the same the grounds of appeal taken by Revenue in ITA No.2603/Ahd/2017 are dismissed. C.O. No. 45/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: ....
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....he relevant sections or rules, there was no justification to make the disallowance. It was also argued that Form No. 3CL was an internal document between two government departments i.e. DSIR and Director of Income Tax [Exemptions). Thus, it was not within the control of the appellant. It was also argued that the section nowhere suggests that R & D facility is to be approved from a particular date. A plain reading clearly manifest that the assessee has to develop facility which presupposes of incurring expenditure in this behalf, application to the prescribed authority who after following proper procedure will approve the facilities or otherwise the appellant will be entitled to weighted deduction of any and all expenditure so incurred. 5.6. Having considered the facts and submission, if has 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 appro....