AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2010 (2) TMI 1292
X X X X Extracts X X X X
X X X X Extracts X X X X
....ification in holding that the professional fees and other expenses would not be eligible for weighted deduction u/s.35(2AB) and direct the Assessing Officer accordingly to delete such disallowance. 2. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of weighted deduction u/s.35(2AB) of the Act in respect of Municipal taxes (Rs. 2.25 lakhs) and Salary to Dr. Dutt. (Rs. 77.74 lakhs) (Relief Rs. 39,99,500/-) 3. The brief facts of the case are that the Learned Assessing Officer disallowed weighted deduction on R & D expenditure of Rs. 1,03,35,000/- on the ground that the prescribed authority has not considered the following items to be eligible for weighted deduction: Rs. In lac 1. Recurring Expenditure 46.64 (Building related) 2. Recurring Expenditure (Other than building) i) Municipal Taxes 2.25 ii) Professional fees 79.34 iii) Salary to Dr. C.Dutt 77.74 iv) Unexplained 0.42 160.05 He therefore, following the same added back Rs. 103.05 lacs being weighted components of the sai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld not be covered for the purpose of weighted deduction u/s.35(2AB) of the I.T. Act and direct the Assessing Officer to delete the disallowance referable to such expenses." 7. The brief facts leading to the above common issue are that the assessee claimed weighted deduction u/s.35(2AB) of the Act amounting to Rs. 31,86,54,942/-. The Assessing Officer stated that for this deduction, the approval in Form No CM is required from Secretary Department of Science and Industrial Research (DSIR in short). Before the Assessing Officer the assessee submitted the agreement for research in Form No.3CL and filed the approval for the facility of in-house research in Form No.3CL. The assessee also filed the approval in Form No. 3CL giving the details of expenditure to be allowed for the purpose of deduction u/s.35(2AB) of the Act for the relevant assessment year. According to the Assessing Officer, the date of approval in Form No.3CL is 23-01-2004 and the assessee has filed its copy of letter sent by DSIR to DG (Income-tax Exempt) Kolkata, dated 27-01-2004. The assessee submitted the total break up of expenditure allowed as per Form No.3CL as under:- (Rs. in lacs) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....On perusal of the nature of expenditure it is seen that except for professional fees of Rs. 48 lacs - and garden expense of Rs. 6.93 lacs the other expense are not of the nature referred to above or like. The professional fees are in connection with patent to be registered overseas and hence it would be covered by the nature of expenses covered above. Garden expense has no relation with the research activity. Therefore, I hold that the A.O was justified in excluding these two expenses in granting deduction u/s.35(AB). However, he is directed to allow deduction in respect of the other deductions. This ground is accordingly partly allowed." 8. Before us Ld. CIT Departmental Representative relied on the assessment order and stated that the Assessing Officer has rightly allowed the weighted deduction at 100% on 1,71,47,000/- on the amount of building repairs and other revenue expenses. Accordingly, he supported the orders of the Assessing Officer. On the other hand Ld. Counsel for the assessee carried us to assessee's paper book at page 127 and 128 and narrated the facts as given as under:- Financial Year - 2001-02 (Rs.In lac) Sr. Claimed &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anation to the sec. 35(2AB) the assessee incurring expenditure on scientific research & development in relation to drugs and pharmaceuticals, shall be granted expenditure incurred on clinical drug trials. Accordingly, we find that the sum of Rs. 51.26 lacs in eligible expenditure as the prescribed authority has disallowed sum of Rs. 37.55 lacs revenue expenditure relating to Building and sum of Rs. 133.92 lacs from the revenue expenditure other than Building. As per the break up given above we find that the assessee is entitled to weighted deduction of sum of Rs. 37.55 lacs and Rs. 133.92 lacs in view of the following explanations submitted before the lower authorities :- "Section 35(2AB) grants weighted deduction for any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research & development facility as approved by the prescribed authority. What is excluded is cost of land & building and not the recurring expenditure related to building that is repairs and renovation of buildings, therefore, assessee is entitled to weighted deduction for repairs of Rs. 37.55 lacs related to buildings. Similarly, Municipal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y to the management he has been taken to the Board of Directors by the assessee-company. Therefore, salary paid to Dr. C. Dutt is eligible for weighted deduction u/s.35(2AB). When section speaks of any expenditure, there is no justification to exclude the expenditure of Rs. 133.92 lacs as done by the prescribed authority. The assessee is eligible for weighted deduction on the entire expenditure of Rs. 2124.36 lac, as claimed above." 10. In view of the above facts and circumstances, we are of the view that it is only the expenditure which will only be allowed, whereas the assessee vide the copy of the letter reproduced hereinabove has very clearly explained as to how the entire expenditure claimed by the assessee is allowable. Thus there was no justification in harping upon the figure contained in Form No.3CL as is done by the Assessing Officer. The provisions of the Act it does not contain any specific conditions for the allowance of expenditure to the effect that it will be restricted that contained in Form No.3CL. Needless to point out that such allowable expenditure etc. is reported by the DSIR to DG (Income-tax Exemption), Kolkata without giving an opportunity of being....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roneous contention that for quantification of deduction u/s. 80HHC, sales tax was not to be treated as part of total turnover." 6. The Ld. CIT(A) has further erred in law and on facts in directing to exclude the component of excise duty from the total turnover for the purpose of computation of deduction u/s.80HHC." 10. Both the parties before us agreed that the issue is now covered against the assessee by the decision of Hon'ble Supreme court in the case of CIT Vs. Laxmi Machine Works (2007) 290 ITR 667(SC), wherein it was held that the excise duty and sales tax are not includible in "total turnover" in the formula contained in section 80HHC(3). Therefore, the ground of appeal of the assessee is allowed and the ground of appeal of the revenue is dismissed. 11. Ground no.3 of the appeal of the assessee reads as under:- "3(a) In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has grossly erred u/s.80HHC by disallowing a sum of Rs. 4,22,85,605 being income of DEPB licences during the relevant assessment year, treating it not as the income from business under the provisions of section 28(iiia), 28(iiib) and 28(iiic) of the I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s denied by the lower authorities to the assessee on the ground that the additional conditions envisaged in the third proviso to section 80HHC(3) was not satisfied in the instant case. 16. The Learned Authorised Representative of the assessee before us, submitted that the issue is to be decided in accordance with the decision of the Mumbai Special Bench of the Tribunal in the case of Topman Exports (Supra). 17. We find that in the case of Topman Exports (Supra) it was held that income by way of receipt of DEBP and income by way of profit on sale of DEBP are two distinct and separate income. While income in respect of DEBP is the face value of the DEBP and the same is covered by clause (iiib) of section 28 whereas profit on sale of DEBP is only the element of profit i.e. sale price minus face value of DEBP and the same is covered by clause (iiid) of section 28 of the Act. On a reading of third proviso to sub-section (3) of section 80HHC, it is observed that the additional condition envisaged therein governs the income covered by clause (iiid) of section 28 and do not effect the income covered by clause (iiib) of section 28. It is also observed that no material could be brought....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dment of law. We find that the issue is squarely covered by the decision of the Delhi Bench of the Tribunal in the case of Eastman Industries Ltd. Vs. DCIT (2007) 110 TTJ (Del) 798, wherein on the similar facts, the Tribunal by relying on the CBDT Circular No.2 of 2006 dated 17.01.2006 has held that the Learned Assessing Officer was not justified in charging interest under section 234B and 234D as a consequence of reduction in the claim of deduction under section 80HHC in view of the retrospective amendment of law by the Taxation Laws (Amendment) Act, 2005 with effect from 1.04.1998. We therefore, allow these grounds of appeals of the assessee and direct the Learned Assessing Officer not to charge interest in respect of the income which relates to the lesser grant of deduction under section 80HHC as a consequence to retrospective amendment brought by the Taxation Laws (Amendment) Act, 2005. 21. Ground no.6 of the appeal of the assessee reads as under:- "6. In law and in the facts and circumstances of the appellant's case the Ld. CIT(A) has grossly erred in withdrawing interest U/S.244A amounting to Rs. 28,18,963 in the notice of demand." 22. At the time of hearin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, we do not find any good and justifiable reason to interfere with the order of the Learned Commissioner of Income Tax(Appeals) which is confirmed and the ground of appeal of the revenue is dismissed. 27. Ground no.3 of the appeal of the revenue reads as under:- "3. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of garden expenses Rs. 13,67,730/-." 28. The brief facts of the case are that the Learned Assessing Officer disallowed the expenses on garden on the ground that it was not related to manufacturing process. The assessee submitted that garden expenses were incurred for maintaining good atmosphere within the factory premises. It was helpful in controlling pollution arising from chemical process. Further, garden expenses improve the working condition and thus, this is for the purpose of business and the Learned Assessing Officer wrongly tried to link it with process of production. It was further submitted that it has been held in the case of Steel Tubes India Pvt. Ltd. Vs. CIT (1996) 130 CTR (MP) 547, expenditure incurred in developing garden in front of factory in the process of erection of factory is revenue expenditure. The Learned ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ec. 92CA(93) of the Act. The appellant has invited reference to circular No. 12 dated 23.08.2001, wherein it is stated as under: "However, this is a new legislation. In the initial years of its implementation, there may be room for different interpretations leading to uncertainties with regard to determination of arms length price of an international transaction. While it would be necessary to protect our tax base, there is a need to ensure that the taxpayers are not put to avoidable hardship in the implementation of these regulations. In this background the Board have decided the following: (i) The Assessing Officer shall not make any adjustment to the arms length price determined by the taxpayer, if such price is up to 5 per cent. Less or up to 5 per cent more than the price determined by the Assessing Officer. In such cases the price declared by the taxpayer may be accepted. (ii) The provisions of sections 92 and 92A to 92F come into force with effect from 1st April, 2002, and are accordingly applicable to the assessment year 2002-03 and subsequent years. The law requires the associated enterprises to maintain such documents and information re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the order of the Learned Commissioner of Income Tax(Appeals) which was passed following the CBDT Circular. Thus, we do not find any merit in the ground of appeal of the revenue. Therefore, this ground of appeal of the revenue is dismissed. 33. Ground no.5 of the appeal reads as under:- "5. The Ld. CIT(A) has erred in law and on facts in directing to adopt net interest income for the purpose of deduction u/s.80HHC as against gross interest income of Rs. 2,77,73,000/-." 34. The Learned Commissioner of Income Tax(Appeals) has decided as under:- "11.1 Ground No. 9 is against AO's finding that interest income is income from other sources and it is not a part of business income and additional ground against taking gross interest income in place of net interest. The AO has found that the assessee has earned gross interest of Rs. 2,77,73,000/- and he treated the same as income from other sources, by following the decisions of various High Courts, including the decision in the case of Southern Cashew Exporters Vs. DCIT SLP (C) No. 15119-20 of 2003. (264 ITR 142), wherein it was held that income derived from deposit made with the bank was not entitled to the r....