TaxTMI 
TaxTMI 
2024 (4) TMI 1140
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....Assessee's Appeal): Solitary ground raised by the assessee reads as under: "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in partly confirming disallowance under section 40(a)(i) of the Act to the extent of Rs.19,34,368/- in respect of payments to non-resident persons, without appreciating the fact that the Appellant was not liable to withhold any taxes while making the aforesaid payments." 3. Grievance raised by the assessee in the above grounds relates to the issue of disallowance made of expenses for non-deduction of tax at source thereon, the payment in relation to the expenses being made to non-residents, in terms of provisions of section 40(a)(i) of the Act. Ld.Counsel for the assessee stated that the disallowance made by the AO was partly allowed by the Ld.CIT(A) and therefore both the assessee and Revenue have raised their respective grievance against the order of the Ld.CIT(A) on the issue. 4. The facts relating to the issue are that the AO noted the assessee to have not deducted TDS on expenses incurred in relation to non-residents amounting in all to Rs.67,33,167/-, detailed at page no.26 of his order as und....
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.....61 & 63 of the order, the ld.CIT(A) did not find any merit in the contention of the assessee, noting that no supporting documents with respect to the services had been furnished by the assessee. He also noted that these payments were made in different jurisdictions i.e. Russia, Sri Lanka, France and Italy, which did not restrict the definition of FTS to only such services which "make available" technical knowledge. Accordingly, he held that the impugned payments were liable to tax in India in terms of DTAA with such countries, and since the assessee had failed to deduct tax thereon, he confirmed the disallowance made by the AO under section 40(a)(i) of the amount amounting to Rs.19,34,368/-. 8. Aggrieved by the same, both the assessee and the Revenue has come up in appeal before us. 9. We shall first deal with the assessee' grievance qua confirmation of disallowance under section 40(a)(i) of the Act to the tune of Rs.19,34,368/-. The details of the parties to whom the payments were made by the assessee is reproduced in the order as under: Sr.No. Party Name Country Name Amount in Rs. 5 Clifford Chance CIS Limited Russia 16,05,388 6 Esjay Corporat....
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....ase, the impugned amounts were not liable to tax in India. References were made to several decisions in this regard. 12. The ld.DR, on the other hand, pointed out that these arguments were not made by the ld.counsel for the assessee before the lower authorities and were being raised for the first time. That the facts relating to the issue were not clear, whether parties to whom the payments were made were firms, companies, individual etc. Even otherwise, he contradicted all contentions made by the ld.counsel for the assessee before us, with respect to the applicability of Article 14/ Article 7 of the DTAA with respective countries, and non-applicability of FTS clauses of the DTAA to these transactions. 13. We have heard rival contentions and gone through the orders of the Revenue authorities and also material available on record. Undeniably the disallowances of expenses u/s 40(a)(i) of the Act have been made for lack of evidences filed by the assessee explaining the nature of expenses. That therefore they were treated as being in the nature of Fees for technical services and held liable to tax in India both as per domestic law and as per DTAA with the respective countries.....
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.... Capital Equipments 64923731 Salary / wages 47631202 Material / Consumables 46276833 Any other expenditure (Clinical trials etc) 73453020 Total 64923731 167361055 19. Revenue expenses of Rs.16,73,61,055/- included expenses incurred on R&D which were not approved by the DSIR, prescribed authority under the Act for furnishing requisite certificate specified under the Section, to the tune of Rs.6,49,23,731/-. In the computation of income, therefore, while assessee claimed weighted deduction of the entire revenue expenditure of Rs.16.73 crores amounting to Rs.25.09 crores including in the total claim made by the assessee under section 35(2AB) of the Act of Rs.34.84 crores, the assessee reduced the component of the weighted deduction included therein pertaining to the Revenue expenditure, not approved by the DSIR which being 50% of the Revenue expenditure of Rs.6,42,79,000/- amounted to Rs.3,21,25,867/-. Accordingly, in its computation of income, the assessee claimed deduction under section 35(2AB) of the Act on the entire revenue expenditure, and capital expenditure incurred ....
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....he fact that no such claim was made in the return of income and does not emanate from the assessment order and also that the expenses were not approved by DSIR in form No.3CL." 23. Taking up first issue of disallowance of claim of Rs.1,26,22,834/- made by the AO under section 35(2AB) of the Act, orders of the authority below reveal that, the AO found the impugned claim ineligible for the reason he noted that this amount of capital expenditure incurred by the assessee allegedly on in-house R&D activity was not actually incurred in the R&D facility of the assessee. From the bills/invoices of the capital items, pertaining to the same, he noted that they were all delivered at other places of the assessee, and not at its R&D centre at 1389, Trasad Road Dholka, Ahmedabad. The capital items purchased vide invoice totaling to Rs.2,52,45,668/- were delivered at the following places at - a) At Nanikadi Rs.1,59,34,865/- b) Corporate Office Rs.82....
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....f weighted deduction claimed on capital expenditure on R&D amounting to Rs.1,26,22,834/-. His findings in this regard are at para-7.4. to 7.5 of his order as under: "7.4 Decision: I have considered the assessment order & the submission of the appellant and the materials available on record. The AO observed that during the year under consideration, certain items of capital expenditure of Rs.2,52,45,668/- claimed by the appellant under section 35(2AB) were delivered to corporate office or other premises, and not to the approved R&D facility. The AO held that the appellant diverted said capital items from approved R&D centre to other manufacturing units and accordingly, disallowed the 50% weighted deduction of Rs.1,26,22,834/--under section 35(2AB) of the Act. In this regard, the appellant has contended that the alleged capital assets were initially delivered to corporate office/other places only for technical reasons / process, i.e.,for indenting/procuring/ testing/clearance purpose. Upon the completion of the said processes, the Appellant had shifted these capital assets to approved R&D unit. The essential condition for claim of deduction under section 35(2AB) is that the a....
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....ssessee to have been incurred on in-house R&D activity. 28. We have heard contentions of both the parties. We have gone through the orders of the Revenue authorities and documents referred to before us. We have noted that solitary basis for denial of weighted deduction to capital equipment purchased by the assessee for its R&D facility under section 35(2AB) of the Act by the AO was that the invoices were not raised at its R&D facility address, but elsewhere, and the AO was not convinced with the explanation of the assessee that majority of the items delivered elsewhere were for the purpose of testing equipments purchased, which were subsequently shifted to its R&D facility. We have noted that the assessee had furnished evidence of shifting of these items to its R&D facility. 29. The ld.CIT(A), therefore, we hold has correctly appreciated the facts and found the capital items to have been used in the R&D facility only. We also found that the ld.CIT(A) has noted the fact that the impugned capital expenditure was approved by the authority specified for the said purpose under section 35(2AB) of the Act, being DSIR, which was evidenced in the certificate issued to it in F....
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....assessee was not entitled to weighted deduction on the same. He further found that the assessee was unable to substantiate with evidence of the incurrence of these expenses. Accordingly, he denied the entire deduction claimed on analytical and testing at the rate of 150% therefor, under section 35(2AB) of the Act amounting to Rs.2,72,33,4552/-. The amount of expenditure incurred on analytical and testing by the assessee was Rs.1,81,55,635/-, the assessee had claimed weighted deduction thereon under section 35(2AB) of the Act at the rate of 150% thereof amounting to Rs.2,72,33,452/-, and this entire amount was disallowed by the AO for lack of evidence and substantiation, and also since the assessee was unable to prove that the assessee was in fact incurred for the in-house R&D facility. 35. Before the ld.CIT(A) the assessee filed additional evidence of all the invoices relating to analytical and testing expenses and contended that since the AO had not given any opportunity to the assessee to furnish the same, he requested for admission of these additional evidence. The ld.CIT(A) noted that in the show cause notice, the AO had only sought explanation for weighted deduction claimed....
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....regard is reproduced at para 10.2 (page no.19( of the CIT(A)'s order. The ld.CIT(A) appreciated the contentions of the assessee, and held that the considering the nature of the activity and taking note of the fact that the assessee had adduced relevant evidences of incurring the same, the claim of the assessee to the weighted deduction on the analytical and testing expenditure to the tune of Rs.2,72,33,452/- was allowable in law. His finding in this regard at para 8.5 of his order are as under: "8.5 Further, with respect to allowability of weighted deduction under section 35(2AB), the appellant has submitted that the expenditure is incurred for analysis and testing activities, which is an integral part of R&D function. In respect of R&D material procured, the properties/ desired properties are analysed and tested in the form of trial batch, pilot batch, scale up batch, exhibit batch etc. to achieve the complete R&D result. Considering the nature of the activity, it is clear that the analytical and testing expenditure are in form of research and development expenditure and are hence eligible for weighted deduction under section 35(2AB). Accordingly, I direct the assessing o....
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....No.4 of the Revenue challenges admission of claim of deduction under section 35(2AB) made by the assessee during the appellate proceedings before the ld.CIT(A) and allowance of the same by me. The amount of deduction was allowed by the ld.CIT(A) amounting to Rs.3,21,25,867/-. 44. Facts of the matter being that the assessee had incurred total expenses on in-house R&D facility including both capital and revenue expenditure to the tune of Rs.23.22 crores comprising of Rs.6.49 crores capital expenditure and Rs.16.73 crores revenue expenditure. The authority specified for approval under section 35(2AB) of the Act i.e. DSIR furnished a certificate in Form No.3CL mentioning the capital expenditure approved to the tune of Rs.6.49 crores and revenue expenditure to the tune of Rs.10.0 crores. Since DSIR had not approved revenue expenditure to the tune of Rs.6.42 crores, the assessee in its return of income filed, did not claim weighted deduction of 150% on the same i.e. to the tune of Rs.3,21,25,867/- . In the appellate proceedings, the assessee asked deduction of the same, pleading that identical expenses disapproved by the DSIR in the case of the assessee for Asst.Year 2011-12 had been ....
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....case of S.R. Koshit Vs. CIT, 276 ITR 165 (Gj), which had held that the authority under the Act are under an obligation to act in accordance with law, and if a taxpayer under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. Based on this order of the Hon'ble Gujarat High Court, the ITAT in the said case had upheld the CIT(A)'s entertaining of claim made for the first before the ld.CIT(A). The assessee had also cited decision in this regard of the ITAT, Mumbai Bench in the case of Chicago Pneumatic India Ltd. Vs. DCIT, (2007) 15 SOT 252 (Mum)(ITAT), and the decision of ITAT, Delhi Bench in the case of ADIT Vs. Global Geophyiscal Services Ltd., 68 SOT 86 (Del.ITAT). 47. The ld.DR was unable to distinguish decisions relied upon by the ld.CIT(A) while admitting the assessee's claim of deduction under section 35(2AB) of the Act to the tune of Rs.3.21 crores. Therefore, we see no reason to interfere the ld.DR objection to the admission of the said claim of the assessee by the ld.CIT(A). 48. As for the allowance of the said claim by the l....
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....t has obtained legal and professional services from the non-residents in respect of registration of its products with e foreign regulatory authorities for sales in those countries. In this regard, e appellant has contended that in view of the sub-clause (b) of section 1)(vii) of the Act, the amount payable by the resident to non-resident towards fees for technical services is not taxable in India, if the said services are railed for earning income from any source outside India. The said provisions section 9(i)(vii) are reproduced below: "(2) The following incomes shall be deemed to accrue or arise in India :- (vii) "income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or ea....
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....herefore, the same is not liable to tax in India. The ld.DR was unable controvert any of the findings of the ld.CIT(A) as above, both with respect to the fact of services rendered not involving any transfer of technical knowledge, skill or know-how etc. as also with respect to Article 12 of the DTAA between India and USA restricting the scope of FTS such services which made available technical knowledge, skill or know-how etc. 55. In view of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance made under section 40(a)(i) of the Act to the tune of Rs.30,68,538/- pertaining to legal and professional services rendered from entities based in USA. Ground no.5 of appeal is accordingly dismissed. 56. Ground No.6 reads as under: (6) The CIT(A) has erred in law and in facts in deleting the product registration expenses of Rs.1,03,29,379/- which are capital in nature. 57. The issue relates to product registration of expenses of Rs.1,03,29,319/- claimed as revenue expenses by the assessee, and which were expenditure to have been incurred for filing of the company's products in various health departments, jurisdiction of different....
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.....1,34,22,838/-. The ld.CIT(A) noted that identical disallowance of interest made on advances made to CHPL had been deleted by the ITAT in the case of the assessee for Asst.Year 2006-07 in ITA No.1146/Ahd/2011 & ITA No.1518/Ahd/2011 finding the advance to have been made for business purpose. 63. He also noted, the Revenue's appeal against the said decision of the ITAT have been dismissed by the Hon'ble jurisdictional High Court in Tax Appeal Tax Appeal No.200-201 of 2018 vide order dated 4.4.2018. Further, he noted from the facts demonstrated by the assessee that it had sufficient owned funds by way of shareholders' fund to the tune of Rs.162.61 crores for making impugned advances both the CHPL and Apollo Hospitals Ltd. which amounted in all to Rs.19.12 crores, and therefore, following the ratio laid down by various Hon'ble High Courts including the decision of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities, 313 ITR 340, Ashok Commercial Enterprises, ITA(L) No.2985 of 2009, Hotel Savera, 239 ITR 795, he deleted the disallowance of interest made by the AO in entirety. 64. The ld.DR was unable to controvert any of the factual finding of the ld.CIT(A). 65.....
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....nt of exempt income earned amounting to Rs.29,926/-. 70. Before us, the ld.DR was unable to rebut the finding of the ld.CIT(A). 71. In view of the above, we see no reason to interfere in the order of the ld.CIT(A) in restricting the disallowance under section 14A to the extent of exempt income earned by the assessee and thus allowing he assessee to withdraw suo moto disallowance made by it to the tune of Rs.1,00,86,493/-. Ground nos.8 and 9 raised by the Revenue are dismissed. 72. Ground Nos.10 and 11 relate to the issue of adjustment made to book profits of the assessee under section 115JB of the Act on account of provision for bad and doubtful debts and provision for diminution in value of investments as per Explanation 1(1) to Section 115JB of the Act. The grounds read as under: (10) The CIT(A) has erred in law and in facts in deleting the adjustment of Rs.36,53,255/- made u/s 115JB of the Act in respect of provision for doubtful debts which are clearly not allowable as per law. (11) The CIT(A) has erred in law and in facts in deleting the adjustment of Rs.7,45,146/- made u/s 115JB of the Act in respect of provision for dimunition in value of inv....
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....ofits of the assessee of all the disallowance made under section 14A of the Act. The disallowance computed by him under section 14A of the Act to the tune of Rs.2,71,00,172/-, and the ld.CIT(A) restricted the disallowance made under section 14A to the extent of exempt income amounting to Rs.29,926/, which has been confirmed by us in the grounds no.8 & 9 of appeal raised by the Revenue. Therefore, the adjustment, if any, under section 115JB of the Act is to be restricted to this extent. 78. Even otherwise, we have noted that the ld.CIT(A) deleted the entire adjustment made, finding the issue to be covered by the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Gujarat State Fertilizers & Chemicals Ltd., and also noting that the ITAT had ruled in favour of the assessee on an identical issue in Asst.Year 2006-07. Since the ld.DR was unable to controvert the submissions of the assessee, no interference in his order on the issue is warranted. Ground No.12 is rejected. 79. In the result, the appeal of the Revenue for Asst.Year 2008-09 in ITA No.73/Ahd/2020 is dismissed. 80. ITA No.52/Ahd/2020 (Assessee's Appeal) for Asst.Year 2009-10. 81. In th....
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.... in deleting the disallowance of Rs.61,42,607/- (Rs.58,23,895/- + Rs.3,18,712/-) towards foreign remittances u/s 40(a) (i) of the Act. (4) The CIT(A) has erred in law and in facts in deleting the product registration expenses of Rs.1,40,43,154/- which are capital in nature. (5) The CIT(A) has erred in law and in facts in deleting the interest disallowance of Rs.1,47,97,350/-- u/s 36(1) (iii) of the Act. (6) The CIT(A) has erred in law and in facts in-restricting the addition of Rs.1,86,24,986/- made by the AO u/s 14A to Rs.29,926/-." 86. A perusal of the above grounds would emerge the following scenario - o Ground No.1 and 2 are similar to ground no.1 and 2 of the Department's appeal for Asst.Year 2008-09; o Ground No.3 is similar to ground no.1 of the assessee's appeal and ground no.5 of Department's appeal for Asst.Year 2008-09; o Ground No.4 is similar to ground no.6 of Department's appeal for Asst.Year 2008-09; o Ground No.5 is similar to ground no.7 of the Department's appeal for Asst.Year 2008-09; o Ground No.6 is similar to ground no.8 of the Department's appeal for Asst.Year 2008-09; o Groun....
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....ture. The breakup is as under. Particulars Capital Expenditure Revenue Expenditure Capital Equipments Salary/wages Material/Consumables Any other expenditure (Clinical trials etc) Total (In) 64923731 64923731 (In) 47631202 46276833 73453020 167361055 Out of this amount, Rs 6,49,23,731 is capital expenditure claimed as incurred for in house R & D. Assessee was asked to substantiate the claim of incurring of this capital expenditure for in house R & D by producing the vouchers for purchase of these capital expenses in the questionnaire date 19.09 2011. In response the assessee filed replies on 12.10.2011 and 24.10.2011 as under. 4.4 12.10.2011:- Capital Expenditure incurred is as per Annexure E(iv) of Form 3CD (copy herewith) for supporting in respect of the same, we are enclosing herewith the copy of Auditor's Certificate, with the referred Appendix 1 to Annexure IV, filed with the DSIR. As well as the DSIR's issued Form 3CL. 24.10.2011:- Evidences for Capital Expenditure incurred: Apart from the details already filed, viz. copy of Annexure E(iv) of Form 3CD and the filed supporting, being the ....
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....ion mentioned. We wish to submit that we are not given the list of how these numbers are arrived at your end, however, we have broadly gone thru the copies of bills provided, and we agree that quite a number of bills contain the address of our Kadi unit - we wish to submit that these are R&D assets of our Biotech R&D, and the Biotech R&D is located at our R&D centre at Dholka only, however - the Biotech field being relatively new field - we have indenting process as well as procurement of R&D handled by our Kadi unit which is housing Biotech field and the procurement often involves procurement of base "biotech clones", which is to be multiplied and then used. Also at Kadi- in the same campus we have our engineering group concern Karnavati Engg. - the equipments delivery are being tested/cleared by availing this concern's tests also. It is pertinent to note that these biotech assets post delivery are shifted from time to time to our Dholka R&D facility. For your perusal and record we submit herewith documents which evidence the Shifting of these assets from Kadi to Dhoka. (pls. find attached bunch of appx. 100 AHMEDAPages which contain evide....
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....e DSIR for the said places. Obvious purpose of granting approval for 'in house R & D' as a special condition is to encourage business related research of the assessee so that the assessee can. spend on new methods, techniques and requirements of the business. The expenditure on research is not allowable under any of the sections except section 35 and the sub clause (2AB) which grants weighted deduction of 15% comes with additional condition to prevent misuse of the provisions of 35(2AB). Further the under sub section, the deduction is extended to capital items used for in house R & D. There is possibility of misuse of the provision by diverting the capital items and consumables purchased in the name of R & D and use them in regular manufacturing activity at factory. Such an activity will reduce the taxable income of the assessee from the business operations resulting in lesser tax payable and that too at the cost of R & D. To prevent such misuse of the provision, the DSIR gives approval for Research centre'. However verification of the capital expenditure shown by the assessee under R & D, for which 35(2AB) deduction has been claimed, cl....