AI Drafter 
TaxTMI 
TaxTMI 
2024 (12) TMI 1052
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 348/Ahd/2020 - Assessee's appeal 2. The Assessee has taken following grounds of appeal:- "1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so held now. 2. The learned CIT(A) erred on facts and in law in upholding disallowance of administrative expenditure of Rs. 2,50,39,551 made by the Assessing Officer ("AO") in accordance with Rule BD of the Income-tax Rules, 1962 ("the Rules") read with Section 144(2) of the Income-tax Act, 1961 ("the Act"). It is submitted that it be so held now. 3. The learned CIT(A) erred on facts and in law in confirming the disallowance/ capitalization of interest of Rs. 25,22,37,355 as allegedly attributable to Capital Work- in-Progress (CWIP) made by the AO. It is submitted that it be so held now. 4. The learned CIT(A) erred on facts and in law in confirming the disallowance of Rs. 40,21,000 under Section 35(2AB) of the Act. It is submitted that it be so held now. 5. The learned CIT(A) erred on facts and in law in confirming the disallowance of amount of Rs. 1,51,29,735 as expens....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee. 5. Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT (A) who has given partial relief to the assessee. 6. Aggrieved by the order of the Ld. CIT(A), the assessee and Revenue, both are in appeal before the Tribunal. The Revenue is in appeal against the reliefs allowed by the Ld. CIT(A) while the assessee is in appeal against the additions sustained by the Ld. CIT(A). 7. Heard both the parties and perused the material available on record. ITA No. 348/Ahd/2020 - Assessee's appeal Disallowance u/s 14A : 8. On going through the record, we find that in respect of disallowance of interest expenditure under Section 14A read with Rule 8D, the Hon'ble Gujarat High Court, in assessee's own case, for AY 2009-10 & 2010-11 in Tax appeal No. 901/2018 & No. 99/2019 held that where interest free own funds substantially exceed the investment in exempt income yielding securities, there was no justification in making disallowance of interest expenditure. In respect of disallowance of administrative expenditure, Hon'ble Gujarat High Court has deleted the disallowance computed in accordance with Rule 8D and has restricted the disallowa....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., general stores, spares, book debts etc. and not against the immoveable properties of the assessee and the Assessing Officer has not provided any basis in respect of disallowance on interest on such short-term borrowings. It was argued that the total interest received by the Company exceeds the total amount of interest paid, thereby there is no net interest expenditure incurred by the assessee that should be allocated to CWIP. The Ld. AR submitted that where own funds exceed the amount of investments/capital expenditure, the presumption is that own funds have been utilized for making investments/capital expenditure. 9.3 Reliance is placed on the decision of the jurisdictional High Court in Tax Appeal No. 900 of 2018 in assessee's own case for AY 2008-09. We find that the judgment was delivered in the context of 14A. 9.4 On the other hand, Ld. DR, Shri Durga Dutt vehemently argued that the provisions of the Act are very clear with regard to capitalization of interest. The Ld. DR argued that the loans taken by the assessee and funds available with the assessee are mixed one and there is no nexus established by the assessee with regard to loans and utilization. Hence, the Reven....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commercial papers - working capital Interest Rate Swap - Loss A/c 1,28,14,287 External Commercial Borrowing Interest Interest Rate Swap - Floating Interest A/c 5,48,45,719 External Commercial Borrowing Interest Total Interest on borrowings 23,88,41,392 Interest On Income Tax Payment 5,93,080 Disallowed in computation of Income Interest - Others 1,28,02,883 Majority is Interest on security deposit paid to customers Total Interest on others 1,33,95,963 Total Interest cost 25,22,37,355 9.7 The provisions of the Act pertaining to capitalization of interest are as under: "36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 - (i) & (ii)** ** ** (iii) the amount of the interest paid in respect of capital borrowed for the purpose of the business or profession:- Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f ready reference, the operative portion of the relevant part of the order of the Ld. CIT(A) is reproduced hereunder: "I have carefully considered the material facts of the case and the submissions of the assessee. First of all, the assessee claimed the entire expenditure being donations and contributions and debited the P & L Account. However, a major part of it was disallowed and added back by the assessee. The amount which was spent for the above was treated as the expenditure for business purpose and claimed as deduction before the AO. It is clear that the amounts were contributed or donated and hence claimed as incurred by the company. It is not made clear that the expenditure narrated above were spent by the company itself or contributed to other persons. The submissions given by the assessee are in general in nature and not established how such expenditure helped in business prospect of the company. No comparative study or report giving the improvement in business before and after the expenditure was met by the company was furnished to establish that the said expenditure was in fact helped the assessee in its business. The expenditure claimed to have been incurred w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the present case, there is no such evidence, as stated above, filed by the assessee to prove that the business of the assessee increased subsequent to the said expenditure incurred by the assessee. Hence, this ratio is also not applicable to the facts of the case and all these case laws are rendered before insertion of explanation 2 of section 37(1) of the Act and hence, on this count also, these ratios cannot be applied to the facts of the case. Section 37(1) r.w. Explanation 2 clearly speaks that any amount spent by the company towards CSR is not to be considered as the expenditure for the purpose of the business. The expenditure incurred by the assessee is in the nature of CSR and as per section 37(1) the same is not allowable as deduction. The Hon'ble ITAT Chennai in the case of Hyundai Motor India Ltd. (62 taxmann.com 42) held that the expenditure incurred by car-manufacturer on gifts of cars to State police department was held not an eligible expenditure under section 37(1) as it was found not incidental to carrying on business and there was no commercial expediency in incurring this expenditure. The Hon'ble High Court of Kerala in the case of Wipro Ltd. (41....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act on the revenue expenditure of Rs. 366.36 lakhs. However, as evident from Form 3CL dated 15.03.2017, the DSIR approved revenue expenditure of Rs. 326.15 lakhs. The Assessing Officer disallowed the amount of Rs. 40,21,000/-, the difference between the revenue expenditure and the expenditure approved by the DSIR. 11.1 The Rule 6(7A)(b) of the Income-tax Rules, 1962 reads as under:- [(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely :- ..... ..... (b) The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No.3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval:' 11.2 It was argued by the Ld. AR that owing to smallness of amount, the assessee did not approach the DSIR requesting for reason/justification as to why the revenue expenditure incurred for the approved DSIR facility is lower than that actually incurred by the company. It was argued that the provisions in respect of quantifi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....b section 3 speaks about audit of accounts maintained for the facility. Rule 6 of IT Rules were amended with effect from 01.07.2016 to enable the provisions amended in section 35(2AB) of the Act were carried. Amendment to section 35(2AB) of the Act was a substantive amendment and the appellant was put to notice the requirement of the law to claim deduction under that section by virtue of Finance Act, 2015 w.e.f. 01.04.2016 well in advance. The requirement of maintenance of accounts and getting it audited and also furnishing report was brought in the statute and this in the knowledge of the appellant. Rules are procedural one and the enabling Rule was put in place w.e.f. 01.07.2016 and thereby the appellant was having enough time to adhere to the Rule and to claim the deduction as per that section. As per the amended Rule the appellant has to get the certificate even on the expenditure incurred on in house research and development facility from DSIR to claim deduction. The report is required to be submitted by the appellant to the concern authority before the due date for filing of return. In view of these facts, the expenditure claim of the appellant for the year under consideratio....