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2020 (4) TMI 911
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....and additional deduction of 50% on al l the R & D expenditure u/s 35(2AB) and the Ld.CIT(A) failed to consider the decision in the case of M/s Advik Hi Tech Pvt. Ltd. (2014) 51 taxman.com 245 (Pune Tribunal) which is in favour of revenue and was given after considering the Hon'ble High Court orders relied upon the Ld. CIT(A). 2. On the facts and in the circumstances of the case and in law the order passed by learned CIT(A) is erroneous and the learned CIT(A) has erred in deleting the addition of Rs.2,34,335/- made by AO u/s 14A. 3. On the facts and in the circumstances of the case and in law the order passed by learned CIT(A) is erroneous and the learned CIT(A) has erred in deleting the disallowance of Rs.7,32,00,000/- made by AO on account of disallowance of expenses claimed on payment basis out of outstanding provisions standing in the books of accounts. 4. On the facts and in the circumstances of the case and in law the order passed by learned CIT(A) is erroneous and the learned CIT(A) has erred in deleting the addition of Rs.5,59,00,000/- made by AO on account of disallowance of bad debts." 3. In ITA No. 581/Del/2016, following grounds have been ra....
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....n 35(2AB) of the Act upto 31.03.2012, vide application dated 03.09.2007 filed before DSIR.EML was granted general recognition by the Department of Scientific and Industrial Research, Ministry of Science and Technology ('DSIR') upto 31.03.2011, vide approval dated 05.06.2008. However, pending receipt of approval from DSIR for the purpose of section 35(2AB),EML divested the commercial vehicle undertaking, including the aforesaid R&D facility at Pithampur, to the assessee by way of demerger, w.e.f. 01.07.2008. Pursuant to the aforesaid transfer, EML filed letter dated 13th October, 2008 before DSIR to consider following amendments in the earlier approvals granted by DSIR and also for renewal/ extension of recognition pending before DSIR: i) To grant approval under section 35(2AB) in respect of R&D facility at Pithampur for the period 1.4.2007 to 30.6.2008 in the name of EML; ii) To change the recognition letter dated 5.6.2008 for the in house R&D facility at Pithampur in the name of the assessee instead of EML w.e.f. 1.7.2008, and iii) To treat application dated 3.9.2007, requesting for renewal of approval under section 35(2AB) of the Act in respect of....
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....d that during the relevant at the assessee was not eligible for weighted deduction since approval u/s 35(2AB) was granted to the in-house R & D facility from 09.03.2009 only. The AO held that deduction u/s 35(2AB) cannot be allowed for expenses incurred prior to 09.03.2009. 2. The case of the AO is that since DSIR, the approving authority, has mentioned the specific date 09.03.2009 while granting approval to the assessee company, the benefit u/s 35(2AB) cannot be given prior to that date. The plea of the assessee is that the date of recognition/appeal of the in-house R & D facility, being not a condition precedent for claiming deduction u/s 35(2AB), scientific research expenses incurred at an approved R & D facility notwithstanding the date of such recognition shall be eligible for weighted deduction. It is the plea of the assessee that the cutoff date mentioned by DSIR in the approval granting recognition to the R & D facility of the assessee company is extraneous and irrelevant for claiming weighted deduction u/s 35(2AB) of the Act. 3. The CIT(A) has allowed the deduction relying on the decision of Gujarat High Court in the case of the CIT Vs. Claris Life Scienc....
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....ive assessee. In the instant case, R & D facility was approved by DSIR in the case of the assessee for the first time. 8. The facts in the case of Maruti Suzuki India Ltd. Vs. UOI [2017] 84 taxmann.com 45 (Delhi) are distinguishable from the facts of the instant case. In the case of Maruti Suzuki, these was some prima facie mistake in issuing the certificate by DSIR. The writ petition was filed against DSIR. Further, the R & D centre of Maruti was already recognised, while in the instant case R & D centre of the assessee is recognised by DSIR for the first time w.e.f. 09.03.2009. 9. In this connection, reliance is placed on the decision in the case of Advik Hi Tech Pvt. Ltd. Vs. Addl. CIT 920140 51 taxmann.com 245 (Pune-Trib.). In the above case, the Hon'ble ITAT has considered the decisions in the case of CIT Vs. Sandan Vikas (India) Ltd. 335 ITR 117 (Del.) and CIT Vs. Claris Life Sciences Ltd. (Guj.). In para 13.3 of the said order, the Hon'ble ITAT has held that in the above mentioned decision simply it was held that once R & D facility is approved by DSIR, the assessee is entitled to weighted deduction u/s 35 (2AB). The Hon'ble ITAT has relied upon the decisio....
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....l would normally have been granted only in the year in which the application in Form 3CK is made. If that were to be the case, then the assessee could have got approval only w.e.f. 01.04.2008. It was also held that it is only because of the beneficial provisions indicated in the guidelines that the benefits have been extended to the earlier year subject to the condition that such benefit would be limited only to the capital expenditure. However, in the instant case, the approval has already been in force for the predecessor company. Thus, differentiated. 9. To determine the issue, the sequence of events that followed the recognition granted to EML from the year 2005 needs to be examined. The events are as under: Date Event 22.03.2005 Order for renewal of general recognition granted to Eicher Motors Ltd. ('EML') for R & D Centre at Pithampur by Department of Scientific and Industrial Research, Ministry of Science and Technology ('DSIR') upto 31.03.2008. 10.08.2005 Approval granted by DSIR to EML in Form 3CM under section 35(2AB) of the Act from 21.09.2004 to 31.03.2007. 03.09.2007 Application in Form 3CK filed by EML before DSIR for renewal of approval und....
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....thority, then, there shall be allowed a deduction of [a sum equal to 81-[one and one-half] times of the expenditure] so incurred: [Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred.] [Explanation.-For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).] (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and developmen....
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....Enfield (Motorcycle division of Eicher Motors Limited) Thiruvottiyur High Road, Thiruvottiyur Chennai 600 019, Tamil Nadu It is submitted that R&D facility situated at Pithampur as mentioned at Sl.No.1 has been recognized upto 31.03.2011 vide your letter dated 05.06.2008 (copy enclosed). The R&D facility situated at Chennai as mentioned at Sl.No.2 has been recognized upto 31.03.2010 vide your letter dated 25.06.2007 (copy enclosed). It is submitted that both the aforesaid R&D facilities have been approved u/s 35(2AB) of the Income Tax Act, 1961 upto 31.03.2007 vide your approval order in Form No.3CM dated 10th August 2005 (copy enclosed). In our application dated 03.09.2007, we have applied for renewal of approval u/s 35(2AB) of both the R&D facilities till 31.03.2012 in view of extension of deduction u/s 35(2AB) till 31.03.2012 by the Finance Act, 2007. The aforesaid application is under consideration in your office. It is submitted that R&D facility at Pithampur, is a part of commercial vehicle business of the applicant company (Eicher Motors Limited). It is submitted that commercial vehicle business including ....
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.... 09.03.2009 but it only denotes that the extension upto 31.03.2012 against the period given upto 31.03.2011 to the EML vide letter dated 05.06.2008 of the DSIR. This proves that the assessee is eligible to be recognized from 01.07.2008 to 31.03.2012 but not from 09.03.2009 to 31.03.2012 as opined by the Assessing Officer. Hence, the deduction has been rightly allowed to the assessee by the ld. CIT (A). 14. Further, the ld. DR objected to the granting of deduction u/s 35(2AB) on the grounds that the passing of the CV unit along with R&D unit has been transferred to the assessee by the way of slump sale but not by the process of demerger/amalgamation. Hence, the benefit of weighted deduction cannot be allowed to the assessee. 15. Provisions of Section 35(5) reads as under: "Section 35......................... [(5) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company (being an Indian company) any asset representing expenditure of a capital nature on scientific research,- (i) the amalgamating company shall not be allowed the deduction under clause (ii) or clause (iii) of sub-section (2); an....
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....es that have incurred after the date of DSIR approval letter i.e. 09.03.2009. Further, we also find that the AO has observed that deduction u/s 35 has been claimed under the head "intangible assets". We also find that the core issue of examination of the expenditure has not been resorted as the revenue held that the assessee was not eligible for the deduction u/s 35(2AB) for expenses incurred prior to that date. Hence, in order to meet the ends of justice, a fair opportunity has to be allowed to both the parties, it is hereby directed to submit the details of capital expenditure and revenue expenditure for the entire period from 01.07.2008 to 31.03.2009 so as to avail the correct deduction as per the principle laid down in this order. Addition u/s 14A: (ITA No. 580/Del/2016 A.Y. 2009-10) 19. The Assessing Officer having observed that the assessee has earned exempt dividend income of Rs.12 lacs disallowed an amount of Rs.2,34,335/- u/s 14A r.w.r. 8D(iii). The Rule 8D(2) as applicable to the assessment year 2009-10 reads as under: "[(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely....
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....claimed by the assessee on the grounds that the assessee did not furnish the copies of ITR of VIPL to prove that these expenses which were booked provisionally have not been claimed and also on the reason that the proof of payment against the aforesaid provision by the assessee during the year have not been submitted. The Assessing Officer has also not accepted the certificate given by the Chartered Accountant as it was undated. During the proceedings before the ld. CIT (A), the assessee has filed documents in the form of ITRs of VIPL the earlier company and also certificate from Chartered Accountant regarding expenditure incurred on account of the provisions. The ld. CIT (A) after going through the ITRs gave a categorical finding that the deduction on account of the provisions has not been claimed by the assessee and also held that the assessee had discharged the liabilities against the provisions received from VIPL. The ld. CIT (A) has given this categorical finding after due verification of ledger and books of accounts. 23. Since, the facts are not disputed by both the parties and the issue is purely based on the facts which have been verified by the ld. CIT (A) and since no ....
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....e assessee was entitled to write off the bad debts. It noted that the assessee had not only treated the amount as a debt owed to it but had allowed the interest accrued thereon to be assessed in its hand as the interest constituted part of the debt. At the instance of the Commissioner, a reference was made to the Andhra Pradesh High Court for its opinion on the question set forth earlier. The High Court answered the question in the affirmative and against the department. 6. It is not disputed that the assessee succeeded to the business of the predecessor-firm and took over all its assets and liabilities, including the debt due from Laxmi Trading Co. The business carried on by the predecessor-firm was now carried on by the assessee. The facts also show that the assessee paid income-tax on the interest income accruing on the debt for the assessment year 1963-64. It is also not disputed that the parties effected a settlement on 31-3-1965 whereby a sum of Rs. 25,000 was accepted by the assessee in satisfaction of the debt and that the balance of Rs. 15,100 was written off by the assessee as as irrecoverable. The question is whether money owed by a debtor under a transaction wi....
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....f business or profession', shall be chargeable to incometax. The profits and gains of a business are charged to incometax. To compute the profits and gains so chargeable, section 36 provides for allowing a number of deductions. Each of the deductions must relate to the business. If the same assessee was carrying on a business and he wrote off a debt relating to the business as irrecoverable, he would without doubt be entitled to a corresponding deduction under clause (vii) of subsection (1) of section 36 subject to the fulfilment of the conditions set forth in sub-section (2) of section 36. If a business, along with its assets and liabilities, is transferred by one owner to another, we see no reason why a debt so transferred should not be entitled to the same treatment in the hands of the successor. The recovery of the debt is a right transferred along with the numerous other rights comprising the subject of the transfer. If the law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account, it seems difficult to accept that the same right should not be recognised in the transferee. It is merely an incident flowing fr....
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.... be covered within the terms of subclause (b). The successor assessee, in effect, steps into the shoes of his predecessor. 9. Accordingly, we hold that the assessee in the instant case was entitled to the deduction as a bad debt of the sum of Rs. 15,100 written off by it in its accounts of the previous year as irrecoverable." Hence, we decline to interfere with the reasoned order of the ld. CIT (A). Disallowance of Training Expenses: (Ground No. 2 of ITA No. 5734/2016) 25. The assessee has claimed expenses on account of "service training school" under the head "selling and distribution expenses". It was submitted that these expenses pertain to training of the employees to equip themselves with the latest technological development. The AO held that the training is akin to skill development of the technicians and is enduring in nature and related to brand image of the company and hence capital in nature. The AO disallowed 1/3rd of the expenses holding that they are not allowable in one single year. During the arguments, it was submitted that the assessee is in the business of commercial vehicles which needs continuous innovation and development. The expenses were in....