TaxTMI 
TaxTMI 
2022 (11) TMI 1593
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvice charges" are to be assessed. 3. The revenue is in appeal in respect of the following issues a) relief granted by Leonard CIT (A) in respect of addition made under section 14 A of the Act. b) heads of income under which "income from letting out" and "income from service charges" are to be assessed. 4. The facts relating to the case are stated in brief. The assessee is engaged in the business of manufacture and sale of Transformers, switch gears, circuit breakers, network protection and control gear, HT and LT motors, drives, lighting, fans, pumps and other consumer appliances. The assessing officer completed the assessment by making various additions. The Learned CIT(A) granted partial relief to the assessee. Hence both the parties are in appeal before the Tribunal in respect of issues decided against each of them by learned CIT (A). 5. The common issue relates to disallowance made under section 14A of the Act. During the year under consideration, the assessee had earned tax free dividend income of 9.27 crores. However, the assessee did not make any disallowance under section 14A of the Act towards expenses incurred in earning the exempt income. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arning exempt income. Accordingly, it was contended that no disallowance u/s 14A of the Act could have been made by the AO without recording such dissatisfaction. In support of this contention, the assessee also placed reliance on the decision rendered by the co-ordinate bench in AY 2009-10. 9. However we noticed that the facts are different in this year. We notice from the assessment order that the assessing officer has discussed in detail with regard to the contentions of the assessee that it did not incur any expenditure in earning exempt income. Though the AO has not specifically stated that he was not satisfied with the contentions of the assessee, yet his dissatisfaction is discernible from the discussions made by him in the assessment order. Hence the AO has proceeded to make disallowance under rule 8D of IT rules. Accordingly, we are of the view that the dissatisfaction of the AO is discernible from the discussions made by him in the assessment order. Accordingly we reject this contention of the assessee. 10. The assessee, in its written argument, has submitted that some of the dividend income received by it is taxable and the AO has not excluded the same. We noticed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as deduction. Accordingly, he disallowed the capital expenditure of Rs. 12.91 crores treating the same as unapproved capital expenditure. 14. Before the learned CIT(A), the assessee contended that Rs.12.91 crores was actually claimed as deduction under section 35(1)(iv) of the Act, which allows 100% deduction of capital expenditure (other than expenditure incurred on acquisition of land, whether the land is acquired as such or as part of any property). The assessee further gave break-up of above said capital expenditure of Rs. 12.91 crores as under:- Building for approved in-house R & D - 609.10 lakhs Plant & Machinery for unapproved R & D - 46.08 lakhs &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore Ld CIT(A). It was explained that the eligible revenue expenditure incurred by the assessee was Rs. 30.92 crores, whereas the assessee had claimed deduction on the amount of Rs. 22.22 crores only. Accordingly the assessee claimed before the learned CIT(A) that the weighted deduction of 150% should be allowed on the balance amount of Rs. 8.70 crores also. It was submitted the assessee has inadvertently omitted to claim weighted deduction @ 150% on the above said amount of Rs. 8.70 crores. 17. The learned CIT(A) considered the additional claim and also examined the deduction allowed by the AO u/s 35(2AB) of the Act. He took the view that the deduction u/s 35(2AB) of the Act could be allowed only if the expenditure had been certified by DSIR, i.e., if the amount of expenditure certified by DSIR was lower than the amount claimed by the assessee, then the claim should be restricted to the amount certified by DSIR for allowing weighted deduction. He noticed that the AO has allowed the claim of the assessee without examining the approval, if any, granted by DSIR. Since the learned CIT(A) has taken the view that the amount not certified by DSIR is not eligible for weighted deduction,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; 636 lakhs ======== Weighted deduction of 50% denied on Account of non-approval 318 lakhs (C) Total revenue expenditure claimed by the assessee in ROI 2222 lakhs (-) Certified by DSIR &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; Weighted deduction of 50% denied on Account of non-approval 435 lakhs The assessee is aggrieved by the above said disallowances made by Ld CIT(A). 18. The Ld A.R submitted that the Ld CIT(A) has not only sustained the disallowance, but also enhanced the same only for the reason that the scientific research expenditure certified by DSIR was less than that claimed by the assessee or not certified. He submitted that the Ld CIT(A) has not properly interpreted the provisions of sec.35(2AB) of the Act. He submitted that the above said section, at the relevant point of time, requires only "approval of the in-house research and development facility of the assessee" and does not require certification of expenses. He submitted that the mandatory condition of approval of scientific research expenses was introduced in the subsequent years only. He further submitted that an identical disallowance made by the tax authorities on identical reasoning has been deleted by the co-ordinate bench in the assessee's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der the provisions of sections 35(1)(i) and 35(2AB), a specific approval of quantum of expenditure, by the prescribed authority, is the pre-requisite for deduction, the provisions of section 35(2AB) requires approval for Units and not approval for the quantum of expenditure. For ready reference, section 35(2)(AB) reads as under: Expenditure on scientific research. 35 (2AB)(1) Where a company engaged in the business of biotechnology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to 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 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the Hon'ble Gujarat High Court vide its decision reported at 250 taxmann 270, it has been held that the objective of Form 3CL is limited to the forwarding of the intimation of the approval of the unit; that Form No. 3CL is a mere report for intimation of approval of R & D facility. In this regard, as rightly pointed out, such aspect stands confirmed by sub- rule (7A) of Rule 6 of Income Tax Rules, as within subsisting (now amended w.e.f. 01.07.2016), to provide for quantification of expenditure as well. The Finance Act, 2015 as amended to sub section (3) of section 35 w.e.f. 01.04.2016, providing for furnishing of reports in the manner to be prescribed. It is, thus, w.e.f. 01.04.2016 that the provision has been made for approval of quantum of expenditure, for the first time. 11. Further still, in Pune ITAT decision in the case of Cummins India Ltd. v. Dy. CIT (2018) 96 Taxmann.com 576 (Pune-Trib.), which is a decision directly on the issue at hand, it has been held, inter alia, to the fact that though the Rules stipulate the filing of audit report before the prescribed authority by availing the deduction u/s. 35(2AB) of the Act. The provision of the Act prescribed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee under the provisions of section 35(1)(i) and 35(1)(iv). These provisions of allowing 100% deduction of expenditure on in-house scientific research, irrespective of the approval of the unit and the certification of the expenditure, where the actual expenditure, as in the case of the assessee is verified by the Statutory Auditor and certified by the Independent Auditor and Tax Auditor. 15. The assessee is found correct in contending that the ld. CIT(A) has observed that the extent of the expenditure was never verified by the A.O. Thus, according to the assessee it goes to confirms that the A.O. disallowed the claim without due application of mind. This contention of the assessee is correct, as evident from the assessment order itself, wherein the ground for the disallowance was the non approval of the expenditure claimed by the DSIR. 16. On behalf of the assessee, another contention has been raised, that the ld. CIT(A) is wrong in observing that during the remand proceedings, the assessee has not objected to the action of the A.O. in making the disallowance u/s. 35(2AB). This, it has been emphasized, that the assessee had always objected to the disallowanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he balance amount of claim of Rs.10.74 crores. 21. The learned CIT(A) noticed that the Baddi unit is manufacturing fans, while assessee is also engaged in manufacturing of various other industrial machineries. Accordingly he held that the like could like only. Accordingly he held that the net profit rate of Baddi unit cannot be compared with overall net profit rate of the assessee. Accordingly, the Ld CIT(A) expressed the view that Assessing Officer was not justified in comparing profit rate of Baddi unit (manufacturing fans) with overall profit rate of the assessee company. After analysing enter gamut of the issue; after considering the submissions furnished by the assessee and the remand report given by the Assessing Officer, the learned CIT(A) finally concluded that the proportionate Corporate office expenses and proportionate revenue expenditure of Research and Development unit have to be allocated to the Baddi unit and the net profit should be computed accordingly. Accordingly he directed the Assessing Officer to re-compute eligible deduction under section 80IC of the Act by reducing proportionate amount of the corporate office expenses and revenue expenses of research and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rch and development unit while computing eligible amount of deduction for Baddi unit under section 80IC of the Act i.e. the learned CIT(A) has not examined as to whether corporate office expenses and revenue expenses of research and development unit are related to the Baddi undertaking and whether any part of those expenses could be allocated to those units. Non-examination of the expenses on the above said angle would be contrary to the decision rendered by Hon'ble Bombay High Court in the case of Zhandu Pharmaceuticals Works Ltd. (supra). Accordingly, we are of the view that this issue also requires examination at the end of the Assessing Officer for the purpose of ascertaining the amount that could be allocated to the Baddi undertaking and for computing correct amount of net profit eligible for deduction u/s 80IC of the Act. Accordingly, we modify the order passed by the learned CIT(A) and direct the Assessing Officer to examine this issue afresh in the light of the discussion made supra and after affording adequate opportunity of being heard to the assessee. 25. The next issue contested by the assessee relates to the rejection of claim to increase the value of opening st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent year or not. In our view, if the closing stock value of the immediately preceding year is changed, then the cascading effect is that the opening stock value of the current year should also undergo identical change. Accordingly, we are of the view that there is merit in the claim of the assessee for increasing the value of opening stock by the same amount that was added to the value of closing stock of the immediately preceding year. 29. However, it is not clear as to whether the assessee has accepted the decision of AO in adding the amount of unutilized CENVAT/MODVAT to the value of closing stock as on 31.3.2009. If the assessee has accepted the addition, then the claim of the assessee to change the value of opening stock is admissible. However, if the assessee has contested the addition in appeal forums, then the same will have impact on the claim of the assessee, i.e., if the addition so made by the AO to the value of closing stock as on 31.3.2009 has been deleted in the appellate forum, then there is no requirement of changing the value of opening stock. Since relevant facts are not available, we restore this issue to the file of AO, who shall verify as to whether the ass....