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2021 (9) TMI 972
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....lant 'had not made any objection for excess deduction claimed. 2.2 The Commissioner of Income Tax (Appeals) is not justified in sustaining the disallowance of Rs. 1,08,22,000/- made by the Assessing Officer out of weighted deduction claimed u/s. 35(2AB) stating that professional charges of Rs. 19,49,201/- and Rent & maintenance charges of Rs. 25,81,848/- (17,33,712 + 8,48,136) were not forming part of Form 3CL. The Commissioner of Income Tax (Appeals) ought to have seen that Rent and Maintenance charges of Rs. 25,81,848/- was incurred on account of R & D activity and is therefore eligible for weighted deduction u/s. 35(2AB) of IT Act. 2.3 The Commissioner of Income Tax (Appeals) also ought to have seen that Maintenance Charges of Rs. 8,79,599/- though not eligible for weighted deduction u/s. 35(2AB), the same is allowable as regular business expenditure. Hence the Commissioner of Income Tax (Appeals) ought to have allowed Rs. 8,79,599/- as deduction though such expenditure is not eligible for weighted deduction u/s. 35(2AB). 3. The Commissioner of Income Tax (Appeals) is not justified in sustaining the disallowance of expenditure of Rs. 3,83,231/- (co....
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....e. The Assessing Officer asked the assessee to show cause as to why the excess claim of Rs. 1,08,22,000/- should not be disallowed. In response, the assessee before the Assessing Officer vide letter dated 12.12.2016 submitted that the excess claim of weighted average deduction of Rs. 108.22 lakhs was due to the professional charges & rent payments which were not included in the expenses mentioned in form 3CL. 5.1. The Assessing Officer has not accepted the assessee's contention on the following grounds: "1. Section 35(2AB) of the IT Act, 1961, clearly states that only that expenditure, as approved by the prescribed authority will be eligible for weighted deduction. 2. Secondly, the assessee has not been able to justify that such professional & rental expenditure has been incurred exclusively for R & D and that it has not been claimed separately in P & L under professional charges & rent. Thus, the Assessing Officer concluded that the above facts do not entitle the assessee to excessive weighted discussion u/s. 35(2AB). In view of the above, the Assessing Officer disallowed an amount of Rs. 1,08,22,000/- 5.2. Before the CIT(A), the assessee submitted t....
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....made by the AO is upheld." 5.4. Before us, the ld. AR of the assessee filed written submissions, which are as under: "1. Appellant is a company engaged in the business of manufacture and sale of formulations and bulk drugs. It filed return of income for AY 2014-15 on 29-11-2014 declaring total income of Rs. 281,94,85,660/-. Later, a revised return was filed on 30-03-2016 declaring total income of Rs. 278,30,12,260/- and Rs. 330,70,75,013 u/s. 115JB. Regular assessment was completed u/s. 143(3) on 13-12-2016. Two disallowances were made while computing total income: a). Disallowance u/s. 35(2AB) Rs. 1,08,22,000/- b(i). Disallowance made u/s. 14A LW.S. Rule 8D(2)(ii) Rs. 3,09,462/- b)(ii). Disallowance made u/s. 14A r.w.s. Rule 8D(2)(iii): Rs. 73,769/- 2. The appellant claimed weighted deduction u/s. 35(2AB) of the Act. On expenditure of Rs. 3,160.17 lakhs appellant claimed weighted deduction at 200% in an amount of Rs. 6,340.34 lakhs.(200%*3160.17 lakhs) The AO found on verification of Form No. 3CL that R & D expenditure of Rs. 3,116.06 lakhs was approved as per Form 3CL. Based on this, the AO called upon the appellant, to explain why ....
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....Thus the appellant submitted that A.O. ought to have allowed deduction as under. a). Weighted deduction at 200% of rent and electy. charges of Rs. 25,81,848/- (25,81,848 * 200%) Rs. 51,63,696. b). Business expenditure on electy. and maintenance charges incurred in other units: on actuals: Rs. 8,79,599. c). Business expenditure on professional charges: on actuals Rs. 19,49,201. Total: Rs. 79,92,496. 5. Learned C.I.T. (Appeals) declined to allow deduction as claimed by the appellant. She stated that the appellant did not submit Form 3CM or 3CL. Learned C.I.T. (Appeals) also stated that the appellant has not submitted documentary evidence as regards the incurring of the rent, electricity and maintenance charges. In this connection the appellant submits that the details submitted at pages 28 to 30 of the paper book are extracted from the accounts maintained by the appellant which were subjected to scrutiny. The appellant also submits that tax was deducted on the payments towards rent, electricity charges etc. made to IKP Knowledge park and Rational Labs Pvt. Ltd., vide pages 31 to 41 of the paper book. The appellant submits that the learned ....
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....y was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No. 3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R & D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by Rs. 6,75,000/-. Thus, grounds of appeal No. 10.1, 10.2 and 10.3 are allowed." 10. In the case of CIT vs. Cadila Healthcare Ltd. 31 Taxmann.com 300 GUJ HC (pages 25 to 30 of paper ....
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.... heard to the assessee wherever he quantifies the expenditure which is less than that claimed by the assessee. We further find that the assessee has included a sum of Rs. 51.26 lakhs as eligible expenditure being Revenue expenditure relating to building and another sum of Rs. 133.92 lakhs being revenue expenditure other than building, which was considered as revenue by the assessing officer himself. These items clearly are within the purview of allowable u/s. 35(2AB) of the Act as weighted deduction. The security expenses are also directly related to in-house research as proper security is required to avoid leakage and only in-house staff will have assessed to building. Accordingly, this expenditure is for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee-company has set up an affluent plant and as is widely accepted the vegetation, i.e. trees have contained the pollution. This expenditure of gardening and plantation has been done for the perseverance of environment and this is directly related to R & D facilities. As regards to salary paid to Dr. C. Dutt amounting to Rs. 58.54 lakhs, he is in-charge of....
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....hich have been cited above, the learned C.I.T.(A) is not justified in confirming disallowance made erroneously by the A.O. based on Form 3CL. The appellant also submits that the learned C.I.T.(A) ought to have considered the claim made by the appellant as explained in paragraph 4 above and ought to have directed allowance of deduction based on the expenditure factually incurred by the appellant on R & D activities and for purposes of its business." 5.5. The ld. DR, on the other hand, relied on the orders of revenue authorities. He vehemently argued the case and submitted that the A.O. has rightly disallowed the disputed amount which was not part of the approval granted as per section 35(2AB) of the Income Tax Act. 1961. These three expenses viz., Rent, Electricity & maintenance and professional charges were not directly related to the approved projects. The case law relied on by the ld. AR of the assessee are not applicable to the present case of the assessee as they are distinguishable in facts. 5.6. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. A.O. was of the view that as per Sec. 35(2....
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.....2016 submitted fresh statement of calculation with regard to the disallowance u/s. 14A, hence the assessee prima facie agreed to the proposed disallowance. The Assessing Officer relied upon the Hon'ble Bombay High Court's decision in the case of CIT Vs. Abhishek Industries Ltd. and on the basis of Board's Circular No. 5/2014 dated as 11.02.2014. The Assessing Officer calculated expenditure incurred in relation to earning the exempt income by applying Rule 8D and worked out the total disallowance u/s. 14A at Rs. 3,83,231/- and the CIT(A) confirmed the same. 6.1. Before us, the ld. AR of the assessee filed written submissions wherein it was stated that apart from the facts submitted before the learned C.I.T.(A), it may also kindly be seen from the balance sheet that its capital and reserved were Rs. 166,75,43,738 as at 31-03-2013 and Rs. 403,27,43,216/- as at 31-03-2014. In this connection the appellant relies on the decision of the Hon'ble Bombay High Court in the case of Pr.CIT vs. Shapoorji Pallonji & Co. Ltd., 117 Taxmann.com 625 BOM HC wherein it has been held that where interest-free funds were available with the appellant, it was to be presumed that investm....