TaxTMI 
TaxTMI 
2016 (5) TMI 1557
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....ted that original assessments for both these assessment years were completed u/s.143(3) of the Act. As per the Ld. AR, all details connected with the claims made by the assessee were before the AO and duly considered by the AO in the course of such assessment proceedings. Assessments were completed u/s.143(3) of the Act, after considering the submissions and claims of the assessee. Notices u/s.148 of the Act were issued after expiry of four years from the impugned assessment years. Accordingly, as per the Ld. AR proviso to Section 147 of the Act applied. Calling our attention to the reasons for reopening reproduced by the AO in the respective assessment orders, Ld. AR submitted that there was no allegation on the assessee that it had failed to disclose truly and fully any material particulars relating to the impugned assessment years. As per the Ld. AR reopenings were done based on a change of opinion. 04. Continuing his submissions, Ld. AR asserted that assessee had received grants from the Government which were treated by it as capital grants and excluded from its income. Expenditure incurred from such grants were revenue in nature and assessee had duly debited such amounts in....
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....ee that expenditure incurred from the grants was revenue in nature was not correct. Further as per the Ld. DR, AO during the course of assessment proceedings had not considered this issue, nor had reached any opinion. Therefore, as per the Ld. DR it was not a question of change of opinion. Assessee made a claim which was patently not available and assessee had failed to disclose in its return of income that its claim for expenditure included capital expenditure as well. Thus as per the Ld. DR reassessment proceedings were rightly initiated for both the years/ 06. We have perused the assessment orders and heard the rival contentions. Original assessment for A. Ys. 2005-06 and 2006-07 were completed on 28.12.2007. Notice u/s.148 of the Act was issued for A. Y. 2005-06 on 21.01.2013 and for A. Y. 2006-07 on 13.09.2012. Obviously the notices were issued after expiry of four years from the end of impugned assessment years. Section.147 of the Act is reproduced hereunder : If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such i....
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....3 as cab be seen from the Chart No. 4 enclosed herewith. 3.2 The Income Tax Department has gone on appeal With Hon'ble Karnataka 'High Court for A.M. 1995-96. 1997-98. 1994-95 & A-Y- 1996-97 under section 260A of the Income Tax Act, 1961. CBDT (REVENUE) has sought permission from Committee on Disputes (COD) to permit the Dept for pursuing the appeals for A.Y.199S-96 & A.Y.1997-98 with High Court but the COD has decided not to give clearance to CBDT for pursuing the appeals in the Hon'ble High Court as no question of fact and law are involved in the (copy Enclosed as E4). 3.3 Further, A.O. has allowed the Grants received from the Government for R&D as deductible expenditure for the Assessment years 2003-04 & 2004-05. In view Of the above we request to your goodself to allow the grants received from the government for the Assessment year 2005-06. 07. It is clear from the above that assessee had brought to the notice of the AO the decision of Tribunal in assessee's own case for A. Ys. 1995-96, 1997-98 and 1994-95 & 1995-96, in relation to the treatment of the grant. Observations of the Tribunal in assessee's own case for A. Y. 1995-96 in ITA No.763/Ban....
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....rought to the notice of the AO the Tribunal order wherein the observations clearly indicated that expenditure incurred from the grant was of capital nature. In such circumstances it cannot be said that assessee had failed to disclose fully and truly all material facts necessary for the assessment. For a reopening to be resorted after expiry of four years from the assessment year, it is necessary for the Revenue to specifically show in the reasons, the nature of the failure of the assessee as to how it failed to disclose all material facts necessary for the assessments. Revenue also has to bring in tangible materials which had helped it to come to a conclusion that income chargeable to tax had escaped assessment. Main reason cited by the AO for coming to a conclusion that income of the assessee had escaped assessment is that the assessee had misrepresented and not furnished details of revenue expenditure claimed in the profit and loss account. In our opinion this is far from truth since the AO in the original assessment order clearly mentioned that the books were produced and verified. Hon'ble Apex Court in the case of ICICI Securities Primary Dealership Ltd (supra) has held that on....
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....has been held as under (page 58) : "The petitioner has relied upon the proviso to section 14A of the Act. The proviso, according to us, is not applicable in view of the fac tual matrix of the present case and does not protect or come to the aid of the petitioner. In the present case, after return of income for the assessment year 2000-01 was filed on November 30, 2000, the case was taken up in scrutiny. Assessment order under section 143(3) of the Act was passed on March 7, 2003. The proviso only bars reassess ment/rectification and not original assessment on the basis of the ret respective amendment. The proviso does not stipulate and state that section 14A of the Act cannot be relied upon during the course of the original assessment proceedings. The Assessing Officer was, there fore, required to disallow expenses incurred for earning exempt or tax free income. Failure on the part of the Assessing Officer to apply section 14A when he passed the assessment order under section 143(3) of the Act dated March 7, 2003 has prima facie resulted in escape ment of income. The proviso is not intended to apply to the cases of the present nature. The object and purpose of the proviso ....
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.... the Act. However this Tribunal had allowed the alternative claim for allowance u/s.39(1)(iv) of the Act and remitted it back to the AO for verification and quantification. Relevant paras 15 to 20 of the Tribunal order is reproduced hereunder : 15. We have perused the orders and heard the rival contentions. There is no dispute that assessee had received a sum of Rs. 570,65,61,000/- as grant from the central government. It had deducted the said sum while computing its total income for the tax purposes. In other words, assessee itself had treated it as capital receipts. We find that such treatment given by the assessee is in accordance with a decision given by this Tribunal in assessee's own case for A Y. 1995-96 in ITA No.763/Bang/1998, dt.22.02.2002, placed at paper book page nos.207 to 230. In the said decision a reference has been made to the Memorandum of Understanding between the assessee and Aeronautical Development Agency of Government of India. It seems in the said Memorandum of Understanding, one of the conditions agreed by the assessee was that there would be no charge of depreciation on capital assets funded by the government. Relevant observations of the Tri....
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....elf-reliant technology for the manufacture of LCH / LCA, which were required for the defence of the country. Conditions of the Grant required the assessee to utilise it for the R & D of the LCA and LCH and related technology. Thus the expenditure incurred by the assessee using such grant which were debited to its profit and loss account were such that it would result in acquisition of a capital asset in the nature of indigenous selfreliant technology for manufacture of combat aircrafts and helicopter. As noted by the lower authorities such expenditure would be a part of the capital work-in-progress, and could not have been claimed by the assessee as revenue outgo. Before the AO, assessee itself has stated that once the LCA was developed and certified, it would be commercially produced and at that time revenue would be offered to tax. Thus there is an indirect admission by the assessee that expenditure incurred out of the grant resulted in acquisition of a capital asset. Once it is considered so, in our opinion, assessee could not claim such expenditure as revenue out go. 18. Now coming to the claim of the assessee that expenditure should be considered as eligible for deduc....
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.... considering it to be a fresh claim which required filing of a revised return. Judgment of Hon'ble Apex Court in the case of Goetze (India) Ltd (supra) only limits the power of the AO to consider a new claim but does not limit the powers of appellate authorities in any way. However the question as to what could be the amount of scientific research expenditure on which assessee is eligible for claim of deduction u/s.35(1) of the Act, require verification since it need not be equal to the grant amount received by the assessee. It could be either more or less. This aspect, in our opinion, requires a fresh look by the lower authorities. Thus, though assessee's claim that expenditure against government grant were wholly allowable as Revenue outgo is incorrect, it cannot be denied deduction available to it under section 35(1)(iv) of the Act, if it can show that other conditions set out therein are satisfied. Thus we uphold the order of the lower authorities, in so far as disallowance of expenditure is considered. However, vis-a-vis claim of the assessee it ought have been given deduction u/s.35(1)(iv) of the Act, to the extent it was eligible, we set aside the orders of ....
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....ere is no case for the Revenue that expenditure disallowed by the AO for the purpose of computing total income under the normal provisions of the Act fell within any of these clauses. CIT (A), in our opinion, had correctly appreciated the dictum laid down by the Hon'ble Apex Court in the case of Indo Rama Synthetics (I) Ltd (supra). We also note that AO had added back the expenditure relating to the research as capital in nature, but did not exclude the capital grants from the income, while computing MAT. We therefore do not find any reason to interfere with the order of CIT (A). Cross appeals of the Revenue for both the years stand dismissed. 21. Now we take up appeal of the assessee for A. Y. 2010-11. Assessee has altogether taken seven grounds of which grounds 1, and 7 are general in nature and ground 6 is consequential needing no specific adjudication. Vide its ground 2 grievance raised by the assessee is that CIT (A) upheld the disallowance of Rs. 68,67,145/- made by the AO u/s.14A r.w.Rule 8D. 22. Facts apropos are that assessee had an investment portfolio of Rs. 217.65 crores as on 31.03.2010. As on 31.03.2009 such investment was only Rs. 44.03 crores. Assessee had rec....
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.... only for indirect expenditure. During the relevant previous year, investment of the assessee had gone up from Rs. 44.03 crores to Rs. 230.65 crores. Claim of the assessee that there was no indirect expenditure incurred by the assessee cannot be accepted in the face of the above. Investments made, whether strategic or otherwise would necessarily require application of mind by the concerned authorities of the assessee company. As for the reliance placed on the decision of coordinate bench in the case of Subramanya Constructions and Development Co. Ltd (supra), dividend income on which exemption was claimed was Rs. 33,600/- on shares worth Rs. 2,30,400/- held by the concerned assessee, in M/s. Indian Overseas Bank and the holding was the same all through the concerned previous year. Here on the other hand, as we have already mentioned investment of the assessee had substantially gone up and the dividend income of the assessee came to Rs. 123.5 lakhs. In such circumstances, we are of the opinion that the above decision relied on by the Ld AR would not further its case. In our opinion AO was justified in applying Rule 8D(2)(iii) . We do not find any reason to interfere with the same. G....
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.... acquiring indigenous capabilities in the design & development for the subsequent manufacture of: a) b) 4.1.3 HAL 4.1.4 State-of-Art, Armed & Multi-Role Helicopters, capable of functioning at high altitudes and in harsh terrains, that are the indispensable requirement of the Defence forces like the IAF, Army, Navy, the Coast Guard etc; and Multi-role, light weight combat aircraft with contemporary capabilities which would meet the near future requirements of the Defence forces like the IAF, Army, Navy, the Coast Guard etc; was identified to undertake the above research and development programs mainly in respect of the Advanced Light Helicopter (ALH) and the Light Combat Aircraft (LCA) for acquiring the necessary technological capabilities for the subsequent production activities by HAL. Accordingly, HAL is involved in the design & development of: a) The ALH is a 5.5 tonne twin turbine helicopter with multi role, multi-mission capabilities for use in wide range of military applications. ALH is designed to meet the most challenging and the stringent requirements of the armed forces. It is optimized for th....
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....Bank a/c Debit XXXXXXXX Credit Capital Reserve Fund (on receipt of monies from Govt. for XXXXXXXX conduct of scientific research) (b) Capital Reserve/ Fund... XXXXXXXX Bank a/c.. (on incurrence of expenditure on scientific research) XXXXXXXX 4.2.1.3 The second, whereby the amounts received are taken initially to the Capital Reserve in the Balance Sheet. The expenditure incurred is debited to the profit and loss account and equivalent amounts are transferred from the Balance Sheet to the credit of the Profit & Loss Account as under: Document 3 Sl. Particulars (a) Bank a/c... Research Fund / Advance... (on receipt of monies from the Govt for Debit Credit XXXXXXXX XXXXXXX conduct of research) (b) Scientific Research expenditure... XXXXXXXX Bank a/c... (on incurrence of expenditure) XXXXXXX (c) Profit & loss a/c... XXXXXXXX Scientific Research expenditure.. XXXXXXX (On transfer to the Profit & Loss a/c) (d) Research Fund / Advance... XXXXXXXX Development... XXXXXX (with amount equivalent to the amount in Journal entry (c) above) (e) Develo....
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....1 In respect of amounts received for R & D purposes: 4.2.1.1 There are two alternative methods by which such receipts can be recognised in the financial statements: 4.2.1.2 The first, whereby the amounts received as above (which are in the nature of Promoter Owner's contribution) are taken directly to the Balance Sheet as a Capital Reserve, and the expenditure incurred is deducted directly in the Balance Sheet. In this case, the relevant entries made in the books of accounts would be as under: SI. Particulars (a) Bank a/c Debit XXXXXXXX Credit Capital Reserve Fund (on receipt of monies from Govt. for XXXXXXXX conduct of scientific research) (b) Capital Reserve/ Fund... XXXXXXXX Bank a/c.. (on incurrence of expenditure on scientific research) XXXXXXXX 4.2.1.3 The second, whereby the amounts received are taken initially to the Capital Reserve in the Balance Sheet. The expenditure incurred is debited to the profit and loss account and equivalent amounts are transferred from the Balance Sheet to the credit of the Profit & Loss Account as under: Document 6 SI. Particulars (a) Bank a/c....