TaxTMI 
TaxTMI 
2021 (9) TMI 18
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....The grounds mentioned herein are without prejudice to one another. 1. That the order passed by the learned Commissioner of Income-Tax (Appeals) ['CIT(A)'] under section 250 of the Income-tax Act, 1961 ('Act'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2. (a) That on the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the disallowance of expenditure incurred by the Appellant on Research & Development amounting to INR 480,15,29,812 considering the expenditure as capital in nature. (b) That the learned CIT(A) erred in law and facts in disallowing the Research and Development expenditure incurred by the Company without considering the fact that such expenditure would be eligible for deduction under section 28 to 44DB of the Act. 3. (a) Without prejudice to the Grounds No. 2(a) and 2(b) above, having held that the expenditure incurred by the Company out of the grant received from the Government of India is capital in nature, the learned CIT(A) erred in not granting deduction under Section 35(1)(iv) of the Act in respect of such expenditure. (b) That th....
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....s account and was claimed in the return of income as an admissible revenue expenditure u/s 37 of the I.T.Act. The Assessing Officer disallowed the expenditure claimed u/s 37 of the I.T.Act by holding that since the expenditure has been incurred out of grants received from the Government, which was treated as capital receipt, the corresponding expenditure incurred by the assessee towards research and development activities is also capital in nature. 3.2 Aggrieved, the assessee preferred an appeal to the first appellate authority. Apart from the claim of deduction u/s 37 of the I.T.Act, the assessee raised an alternative claim, namely, the expenditure should be allowed u/s 35(1)(iv) of the I.T.Act. The CIT(A) upheld the disallowance made by the A.O. by holding that the expenditure incurred by the assessee do not relate to the business carried on by the assessee and thus the conditions for claiming deduction as stipulated in section 35(1)(iv) of the I.T.Act are also not satisfied. 3.3 Aggrieved by the order of the CIT(A), the assessee raised this issue before the Tribunal. The learned AR submitted that the issue in question is covered in favour of the assessee by the judgment of....
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....me were revenue in nature and ought to have been allowed as deduction under section 37 of the Act. The fact that the expenses incurred by the assessee towards research and expenses have been met out of the grants given by the government, which is treated as capital receipt is immaterial. The Tribunal erred in placing reliance on the case of the assessee for Assessment Year 1995-96 as the Tribunal failed to appreciate the aforesaid order, a the order no where states that the revenue expenses incurred out of the grant would not be allowed as deduction under Section 37 of the Act. It is pertinent to mention here that the nature of the expenditure has to be seen and not the nature of receipt and purpose for which such expenditure is made is a relevant criteria. The expenditure was incurred by the assessee for research and development for manufacture of aircrafts which were to be sold. Thus, the expenditure was incurred for the purpose of business of the assessee and the same ought to have been allowed under Section 37 of the Act instead of Section 35(1)(iv) of the Act." 3.5.1 In the relevant assessment year a sum of Rs. 480 crore was received as grant from the Central Government. Th....
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....ged in the business of "Technology development" nor in the business of "Selling technology". Therefore, following decision of the Hon'ble Tribunal, all such capital expenditure which was incurred by the appellant for developing advanced technology cannot be held to be related to the business activities carried on by the appellant." 3.5.3 The CIT(A) in taking the above view, has referred to the order of the ITAT in assessee's own case for assessment year 1995-1996 (ITA No.763/Bang/2019), wherein it was held by the ITAT that the grants received by the assessee is not taxable being a capital receipt, as the same is bringing into existence a capital asset being technology for manufacturing Aircrafts. The observation of the ITAT for assessment year 1995-1996 are three folds which are scattered over different parts of the order and it is convenient to refer them category-wise. The relevant observation reads as follow:- (a) Grant is capital receipt as the same is for creation of a capital asset being technology: Sr. No. Quote Para. Reference of ITAT order in ITA No.763/Bang/2019 1. Technology acquired being capital asset, grant to carry out research should al....
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....ill be subsequently used for manufacture of ALH & LCA 7 2. Technology acquired as a result of search carried out by the assessee will be useful to manufacture of ALH and LCA 13(v) 3. The grant were given to enable HAL to conduct research and development in defence aviation technology so that it could acquire the necessary technical know-how for the subsequent manufacture of defence equipments. 16 4. The Government retained the services of assessee to develop the technology to be used subsequently, in manufacture of vital defence equipments. 23 3.5.5 In the light of the above, it is clear that the claim of expenditure incurred towards research and development activities u/s 35(1)(iv) of the I.T.Act is to be allowed, provided other conditions are satisfied. Ground Nos.3(a), 3(b), 3(c) and 4 4. The above grounds have become redundant in view of disposal of grounds No.2(a), 2(b). (We have directed the A.O. to examine the expenditure incurred whether it can be allowed as a deduction u/s 37 or 35(1)(iv) of the I.T.Act). Ground No.5 5. This ground was not pressed by the learned AR, hence, the same is dismissed. Ground No.6 6. In this grou....
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....nder section 234B & 234C of the Act. 6. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal." Ground No.1 11. Ground No.1 is general in nature, hence, the same is dismissed. Ground No.2(a) and 2(b) 12. The learned AR did not press these grounds, since the Hon'ble High Court in the first round of litigation had held that expenditure is revenue in nature and allowed the same as deduction u/s 37 of the I.T.Act. Hence, these grounds are dismissed as infructuous. Ground No.3 13. In this ground, it is submitted that the CIT(A) has erred in not granting MAT credit available to the assessee-company. 13.1 After hearing the rival submissions the A.O. is directed to allow appropriate credit in respect of MAT credit. It is ordered accordingly. Ground No.4 14. The assessee submits that the CIT(A) has erred in not granting TDS credit available to the assessee. 14.1 Heard rival submissions. The Assessing Officer is directed to allow appropriate credit in respect of TDS. Ground No.5 15. This ground is regarding levy of inte....
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.... 6. That the learned CIT(A) erred in law and facts in again disallowing 50% of the provision for doubtful debt even though the entire provisions created had already been disallowed by the company in its Return of Income. 7. That the learned CIT(A) erred in law and facts in again disallowing 50% of the provision for doubtful claims, even though the entire provisions created had already been disallowed by the company in its Return of Income." Ground Nos.2(a) and 2(b) (disallowance u/s 14A of the I.T.Act. 17. The Assessing Officer made a disallowance of Rs. 1,57,05,523 u/s 14A of the I.T.Act r.w. Rule 8D(2)(ii) of the I.T.Rules being 0.5% of average value of investment held by the assessee and proportionate interest expenditure not directly attributable. 17.1 The CIT(A) upheld the disallowance u/s 14A of the I.T.Act. The CIT(A) relied on the order of the Tribunal in assessee's own case for assessment year 2009-2010. However, with respect to disallowance of interest expenditure of Rs. 1,355, the CIT(A) granted relief. 17.2 The assessee being aggrieved, has raised this issue before the Tribunal. The learned AR submitted that the issue in question is covered in fav....
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....w that the same would satisfy the requirement of recording of dissatisfaction by the Assessing Officer within the meaning of section 14A of the I.T.Act. 17.6 However, we noticed that the A.O. has mechanically applied the provisions of Rule 8D of the I.T.Rules. We noticed that the assessee has received dividend income from only one company named M/s.Indo Russian Aviation Limited. Considering these facts, we are of the view that the provisions of Rule 8D of the I.T. Rules should not have been applied mechanically. We are of the view that the disallowance u/s 14A of the I.T.Act may be estimated in order to meet the requirement of section 14A of the I.T.Act, since dividend has been received only from one company. Accordingly, we are of the view that a disallowance of Rs. 50,000 would meet the requirements of section 14A of the Act and the same will put a quietus to the issue. Therefore, we set aside the order passed by the learned CIT(A) on this issue and direct the A.O. to restrict the disallowance to Rs. 50,000 u/s 14A of the I.T.Act for assessment year 2011-2012. Ground Nos.3(a), 3(b), 4(a), 4(b), 4(c) and 5 18. The above grounds relate to the issue of disallowance of resea....
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....) That the learned CITCA) erred in law and facts in disallowing the Research and Development expenditure incurred by the Company without considering the fact that such expenditure would be eligible for deduction under section 28 to 44DB of the Act. 4. (a) Without prejudice to the Grounds No. 3(a) and 3(b) above, having held that the expenditure incurred by the Company out of the grant received from the Government of India is capital in nature, the learned CITCA) erred in not granting deduction under Section 35(1)(iv) of the Act in respect of such expenditure. (b) That the learned CIT(A) erred in law & facts in concluding that such expenses were not incurred for the purpose of the business of the company. (c) That the learned CIT(A) erred in not following the order of The Hon'ble Income Tax Appellate Tribunal ['ITAT'] in the company's own case for the assessment year 2005-06, 2006- 07, 2009-10, 2010-11 wherein in the ITAT has allowed deduction under section 35(1)(iv). 5. Without prejudice to the Ground NO.3 and 4 above, where the research and development expenditure incurred is considered as capital in nature, CIT(A) erred in not a....
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....)'] under section 250 of the Income-tax Act, 1961 ('Act'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2 (a) That the learned CIT(A) erred in law and on the facts of the case in upholding the disallowance of INR 30,869,975 under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('Rules'). (b) That the learned CITCA) erred in upholding the disallowances under section 14A in excess of the amount of exempt income. 3. (a) That on the facts in the circumstances of the case, the learned CIT(A) erred in upholding the disallowance of expenditure incurred by the Appellant on Research & Development amounting to INR 18,118,779,000 considering the same to be capital in nature. (b) That the learned CITCA) erred in law and facts in disallowing the Research and Development expenditure incurred by the Company without considering the fact that such expenditure would be eligible for deduction under section 28 to 44DB of the Act. 4. (a) Without prejudice to the Grounds No. 3(a) and 3(b) above, having held that the expenditure incurred by the Company out of the grant received from ....
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....mits that the CIT(A) has erred in not granting TDS credit available to the assessee. 32.1 We have heard the rival submissions and perused the material on record. The A.O. is directed to allow appropriate credit in respect of the TDS. It is ordered accordingly. Ground No.7 33. This ground is with regard to levy of interest u/s 234B, of the I.T.Act. The levy of interest being consequential, the above ground is rejected. 34. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. ITA No.84/Bang/2018 (Asst.Year 2014-2015) 35. The grounds raised read as follows:- "The grounds mentioned herein are without prejudice to one another. 1. That the order passed by the learned Commissioner of Income-Tax (Appeals) ['CIT(A)'] under section 250 of the Income-tax Act, 1961 ('Act'), to the extent prejudicial to the Appellant, is bad in law and liable to be quashed. 2 (a) That the learned CIT(A) erred in law and on the facts of the case in upholding the disallowance of INR 35,369,427 under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('Rules'). (b) That the learned C....
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....his year, the assessee has received dividend income of Rs. 188.61 lakh from two companies. The assessee has voluntarily disallowed Rs. 47,000. For our reasoning stated in para 17 to 17.6 for A.Y. 2011-2012 in ITA No.1091/Bang/ 2017 (supra), we estimate the disallowance to Rs. 1.00 lakh. The A.O. is directed to add the difference amount. It is ordered accordingly. Ground Nos.3(a), 3(b), 4(a), 4(b) and 5 (Disallowance of research and development expenditure) 37. An identical issue was adjudicated by us in assessment year 2007-2008 in ITA No.1090/Bang/2017 (supra). For the reasons stated in para 3.5 to 3.5.5 (supra), we restore the above issues to the files of the A.O. The A.O. is directed to dispose of the above issues following our directions contained in our order for assessment year 2007-2008 in ITA No.1090/ Bang.2017. It is ordered accordingly. Ground No.6 38. In this assessee, the assessee contends that the CIT(A) has erred in not granting MAT credit available to it. 38.1 After hearing the rival submissions, we direct the A.O. to allow appropriate MAT credit in accordance with law. Ground No.7 39. In the above ground, the assessee submits that the CIT(A) has....
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....Appellate Tribunal ['ITAT'] in the company's own case for the assessment year 2005-06, 2006- 07, 2009-10, 2010-11 wherein in the ITAT has allowed deduction under section 35(1)(iv). 5. Without prejudice to the Ground No.3 and 4 above, where the research and development expenditure incurred is considered as capital in nature, CIT(A) erred in not allowing depreciation on the same. 6. That the learned CIT(A) erred in not granting MAT credit available to the company. 7. That the learned CIT(A) erred in law and facts in upholding the order of the learned Assessing Officer in levying interest under section 234B and 234D of the Act. 8. That the Appellant craves leave to add to and /or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this appeal." Ground Nos.2(a) and 2(b) (Disallowance u/s 14A of the I.T.Act) 43. The issue of disallowance u/s 14A had come up for adjudication on identical facts in the preceding assessment year, namely Asst.Year 2011-2012. In this year, the assessee has received dividend income of Rs. 183.97 lakh from three companies. The assessee ha....