TaxTMI 
TaxTMI 
2024 (9) TMI 137
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....by the Company in the return of income. The assessee had preferred an appeal before the CIT(A) which was decided vide the impugned order. Aggrieved with the order of the CIT(A), the assessee is now in appeal before us. 3. The assessee has taken the following grounds in this appeal: "1. In law and in the facts and circumstances of the appellant's case, the impugned Assessment Order and confirming by the Ld. CIT A, is void and deserves to be cancelled and/or modified. 2. In law and in the facts and circumstances of the appellant's case, the learned assessing officer has grossly erred and the Ld. CIT A has grossly erred in confirming, in the alleged excess deduction u/s. 35(2AB) by Rs. 50,34,302/- considered @ 200% of the amount of expenditure on clinical trials etc. laid out for the in house R&D. Without prejudice to the above, in law and in the facts and circumstances of the appellant's case, the learned assessing officer has grossly erred and the Ld CIT A has grossly erred in confirming the computation of the quantum of disallowance at 200% ie. Rs. 50,34,302/-, even when as per the provisions of Indian income Tax Act u/sec. 35 the same is e....
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....ded during the year, The same should be duly allowed to the appellant company, if not to the full extent in the present assessment, should be allowed in the year of w/off. 7. In law and in the facts and circumstances of the appellant's case, the learned Assessing officer has grossly erred and the Ld. CIT A has grossly erred in confirming to the extent of Rs. 240043 as referred to in ground no. 6 above, in working out the income liable to MAT." 4. Ground No.1 is general in nature and does not require any adjudication. Ground Number-2: Deduction u/s 35(2AB) 5. Ground No.2 pertains to disallowance of Rs. 50,34,302/- under Section 35(2AB) of the Income Tax Act, 1961 (in short 'the Act'). The assessee had claimed weighted deduction of Rs. 6,66,06,663/- under Section 35(2AB) of the Act @ 200% of in-house Research and Development (R&D) expenses of Rs. 3,26,90,222/- and further R&D expenses towards building of Rs. 12,26,219/-. In the course of assessment, the assessee had filed the report of the Department of Scientific and Industrial Research (DSIR) in Form No.3CL and it was found that expenditure to the extent of Rs. 313.99 lacs only was approved by the DSIR. It was....
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....l. Rather, the AO should have examined the correctness of the R&D expense of the assessee than merely relying on the expenditure approved by DSIR. 8. It is found that the exact basis of claim of deduction under Section 35(2AB) of the Act at Rs. 6,66,06,663/- was not properly explained by the assessee in the case of assessment proceedings. The assessee had filed the details of the R&D expenses in the course of assessment, as per which the total expenses was to the extent of Rs. 3,39,16,441/-. If this figure is taken as correct, then the assessee should have claimed deduction of Rs. 6,78,32,882/- @ 200% of the expenditure and not Rs. 6,66,06,663/- as actually claimed. This indicates that the details of R&D expenditure as furnished was not correct. Further, the difference of Rs. 25,07,151/- being expenditure not approved by the DSIR was also not properly explained by the assessee. Therefore, the matter is set aside to the file of the AO to correctly verify the expenditure incurred by the assessee on in-house R&D center and, thereafter, allow the deduction at the eligible rate, without taking into account the expenditure as certified by the DSIR. The ground taken by the assessee is ....
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....st disallowance on CWIP. It is found from Note-12 of the accounts that the assessee had itself capitalized interest of Rs. 14,341,166/- to CWIP-Tangibles and another interest amount of Rs. 108,888,368/- to CWIP-Intangibles as on 31st March, 2011, which was duly certified by the auditor. Further, the AO has made the disallowance on the presumption that all the interest bearing funds were utilized towards CWIP, which was not correct. From the Schedule-B of balance sheet it is seen that the assessee had surplus reserve of Rs. 3,392,038,627/- which also would have been deployed towards CWIP. In fact fresh share premium of Rs. 2,356,380,318/- was received during the current year only. Considering this huge interest free funds available with the assessee the presumption of the AO that only the interest bearing funds were utilized towards CWIP, was not correct. Therefore, the disallowance as made by the AO which was based on wrong presumption, can't be held as correct. It is further found that the identical issue was involved in assessee's own case in A.Y. 2013-14 which was decided by the Co-ordinate Bench of this Tribunal in ITA No. 400/Ahd/2018. The finding as given in the said order is....
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....uch more than the interest free advances towards CWIP. Thus, no interest bearing funds have been utilized for the purpose of CWIP advances. Even otherwise also the advances given towards CWIP were for the business purposes not for any other purposes. Further, during the year under consideration the appellant company had earned the profit after tax at Rs. 547 crores during the year under consideration which was more than the total CWIP as on 31/03/2013." Also the judicial proposition in this regard also stands settled by the decision of the Hon'ble Apex Court in the case of CIT Vs. Reliance Industries Ltd., 410 ITR 466(SC) holding that where mixed funds are available and where sufficient interest free funds are there the presumption is that the same were used for the purpose of making interest free investments, calling for no disallowance under section 36(1)(iii) of the Act. The Ld.DR was unable to point out any subsequent decision of the Hon'ble apex court unsettling the said proposition of law. 65. Since the Ld.DR was unable to controvert the findings of the Ld.CIT(A) both on facts as well as law we see no reason to interfere in the order of the ld.CIT(A) deletin....
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...., thus there cannot be a scope of any inference that, unmatched amount should be added as income." 6.3 The above reply of the assessee and the reconciliation filed have been thoroughly perused. It is noticed that the assessee has been able to explain almost the major amount of difference vide its reconciliation chart showing internal transfer. However, the assessee failed to explain the difference amounting to Rs. 1635331/- (Rs. 89609414-Rs. 67974083) on account of addition to CWIP, Therefore, the AR of the assessee was again requested to explain where the difference amount of CWIP of Rs. 1635331/-has been accounted for. It was also asked as to why it should not be treated as capital items written off to the extent of the amount of Rs. 1635331/- and accordingly be treated as capital loss in absence of any explanation and evidences and be disallowed and added back to the total income of the assessee. 6.4 In response, the A.R. of the assessee did not offer any explanation and also was unable to explain the reason of the difference. Further, the A.R. of the assessee also failed to explain as to where this difference has been accounted for in the books of account. Thu....
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.... any capital loss. Rather the addition to CWIP was not fully justified by the assessee and the amount of Rs. 16,35,331/- remained unreconciled which cannot be considered as actual capital loss. Therefore, we do not find anything wrong with the treatment as given by the AO. The decision of Ld. CIT(A) on this issue is, therefore, upheld and the ground taken by the assessee is dismissed. Ground Number-4: Disallowance u/s 40(a)(ia): 16. Ground No.5 pertains to disallowance of Rs. 11,47,701/- in respect of commission paid to non-residents under Section 40(a)(ia) of the Act. The AO found that no TDS was deducted by the assessee in respect of commission paid to the non-residents. It was contended by the assessee that non-residents to whom the commission was paid had rendered services outside India and that their income was not taxable in India. Accordingly, a request was made not to disallow the foreign commission merely because of non-deduction of TDS under Section 195 r.w.s. 40(a)(ia) of the Act. The AO, however, was of the opinion that the source of income of the non-residents was in India and, therefore, their income was deemed to be accrued or arisen in India under Section 9(1)....
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....ne Essar Gujarat Ltd. 397 ITR 55 (Guj.). 21. Per contra, Ld. CIT.DR submitted that the nature of the claim was examined by the AO in the course of assessment proceedings and found to be in the nature of provision for bad debt only. The AO had made specific query about the nature of this claim and as per the finding given by him the amount was not actually written off in the current year. Therefore, the claim being in the nature of provision for bad debt was rightly disallowed by the AO and accordingly the order of the Ld. CIT(A) on this issue was correct. 22. We have carefully considered the rival submissions. It is found from Schedule-S of the audited account that the assessee had claimed deduction of Rs. 1,18,15,926/- on account of provision for bad debts. As per the provision of Section 36(1)(vii) of the Act, amount of any bad debt which is written off as irrecoverable in the accounts of the assessee can be allowed as deduction. Further, Explanation 1 to Section 36(1)(vii) of the Act categorically stipulates that any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the a....
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.... claim which is not allowable as per the provisions of the law. Accordingly, claim of Bad Debt Provision of Rs. 11887543/- is disallowed and added back to the total income of the assessee. Further, an amount of Rs. 240043/- is also liable for addition to the Book Profit u/s 115JB of IT Act." 24. It is, thus, evident from the above facts that the provision for bad debt as claimed in the current year was not actually written off in this year. A copy of the letter dated 29.01.2015 filed by the assessee before the AO has been brought on record, which is reproduced below: It is evident from the above reply of the assessee that the provision for bad debt as debited to the accounts of the current year was not actually written off in the current year. The assessee had itself submitted that these debts were actually written off in the next year and had accordingly requested the AO to allow the deduction for the bad debt in the A.Y. 2012-13. In view of these facts, we do not find anything wrong with the orders of the AO and the CIT(A) on this issue. 25. As regarding reliance of the assessee on the decision of Hon'ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. (sup....