TaxTMI 
TaxTMI 
2026 (9) TMI 450
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....weighted deduction u/s. 35(2AB) Rs. 32,17,70,212/-; foreign-exchange adjustment Rs. 1,56,02,229/-. AY 2014-15 2014-15 - Assessee Validity of assessment for want of fresh notice u/s. 143(2); weighted deduction u/s. 35(2AB) Rs. 16,53,75,419/-; consequential building depreciation Rs. 1,87,263/-. AY 2015-16 2015-16 - Assessee Validity of assessment for want of fresh notice u/s. 143(2); weighted deduction u/s. 35(2AB) Rs. 19,51,96,311/-. 2015-16 - Revenue Section 14A disallowance and section 115JB adjustment Rs. 5,69,30,791/-, including the plea based on the Finance Act, 2022 Explanation. AY 2016-17 2016-17 - Assessee Balance weighted deduction u/s. 35(2AB) Rs. 20,94,80,553/-, against the total expenditure and DSIR quantification referred to in the appellate record. 2016-17 - Revenue Deletion of section 14A disallowance Rs. 6,12,61,778/-; scope of Rule 8D; Finance Act, 2022 Explanation; and corresponding section 115JB adjustment. 3. Since the appeals involve overlapping facts and recurring issues, thus they were heard together and are being disposed of by this composite order. For the sake of brevity, we shall adjudicate these appeals issue-w....
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....2012-13, 2014-15 and 2015-16 are without jurisdiction. 8. The Assessee also placed reliance on various judgements rendered in following cases: LIC Mutual Fund Asset Management Ltd. v. CIT(A), ITA No.2824/Mum/2023, CIT v. IDEB Buildcon (P.) Ltd., ITA No.507/2014 (Karnataka High Court), decided on 02.02.2016, Kelvinator of India Ltd. v. CIT (2013) 358 ITR 440 (Del.), ACIT v. Hotel Blue Moon (2010) 321 ITR 362 (SC).. 9. The Ld. AR further submitted that the issue is a pure legal and jurisdictional issue emerging from the returns and the notices issues, already available on record and is admissible in view of the judgement rendered in National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), even though the same was not urged before the Authorities below in the same form. 10. The plausible case of the Revenue as demonstrated by the Ld. CIT DR and gathered from the assessment record and the submissions, is that a valid notice had already been issued after selection under CASS; the revised return only corrected the return and did not require recommencement of scrutiny; further the Assessee participated fully and suffered no prejudice; any defect stood cured by section 292B....
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....he Assessment Year... non-issuance of notice u/s. 143(2) after the Assessee had filed revised return of income is an incurable defect and is fatal to the assessment order." 14. The Hon'ble Delhi High Court in Kelvinator of India Ltd. case {supra}, while considering waiver of interest, recorded that the filing of the second revised return 'necessitated the issuance of a fresh notice under section 143(2)', which was in fact issued before the assessment. The observation supports the return-specific character of the notice, though the principal controversy there concerned interest u/s. 215. 15. The Karnataka High Court in IDEB Buildcon (P.) Ltd. case {supra} declined interference, where the Revenue could not produce acknowledgment establishing service of the notice asserted to have been issued with reference to the revised return. The decision therefore supports the consequence of failure to establish the jurisdictional notice on the revised return; it is not treated as laying down a proposition wider than its facts. 16. The Hon'ble Supreme Court in ACIT v. Hotel Blue Moon (supra) has held that issuance of notice u/s. 143(2) is mandatory, where the Assessing Officer proceeds t....
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.... 2014-15 and 2015-16, arising out of the assessments, which have been quashed, do not survive for adjudication. The same are, therefore, dismissed as infructuous. 22. Nevertheless, since both the parties have addressed the issues on merits at length and the record also contains cross-appeals, we consider it appropriate to record our alternative findings on merits as well, so that the controversies involved are adjudicated comprehensively, in the event the aforesaid jurisdictional conclusion does not survive in further proceedings. 23. Coming to the merits of the case pertains to AY 2012-13, we observe 1st issue involved relates to 'DEPRECIATION ON TRADEMARK'. Brief facts relevant for adjudication of this issue are that the Assessee acquired worldwide rights in the 'CEAT' trademark from Pirelli & C.S.P.A. under agreement dated 06.10.2010. The initial consideration of EUR 4.5 million was paid on 22.10.2010 and the bank guarantee was furnished on 12.11.2010, which, under the agreement, constituted the effective date. Pirelli retained, as licensee of the Assessee, limited rights up to 31.12.2011 for specified territories and products. 24. The AO proceeded on the footing that t....
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....istration of the Trademark, as set forth on Schedule B hereto, including renewals and extensions of such registrations, (d) common law rights in the Trademark and (e) goodwill symbolized by the Trademark." The agreement further defines the "Effective Date" in the following terms: "Effective Date shall mean the date when the Assignor has received both the Initial Consideration and the Bank Guarantee." 31. According to the Assessee, the initial consideration of Euro 4.5 million was paid on 22.10.2010 and the stipulated bank guarantee was issued on 12.11.2010. On that basis, it is contended that the assignment became effective on 12.11.2010 itself. 32. We further observe that the agreement also specifically deals with the limited rights retained by Pirelli after the assignment. Clause 5, insofar as relevant, provides as under: "As of the Effective Date Assignor has, for the term as hereinafter contained, free of charge, the following rights: a. The exclusive right to use, as a licensee of the Assignee, and to grant exclusive sub-licenses to its Affiliates to use, the Trademark for a limited period commencing as of the Effective Date up to Dece....
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....accepted in A.Y. 2011-12. No distinguishing fact, alteration in the agreement or subsequent event having the effect of divesting the Assessee of ownership has been brought to our notice for A.Y. 2012-13. Once the trademark stood acquired and depreciation thereon was allowed in the preceding year, it necessarily formed part of the opening block of intangible assets for the year under consideration. 37. The proviso to section 32(1), restricting depreciation to 50% where an asset is acquired and put to use for less than 180 days, operates in the year in which such asset is first acquired and put to use. The said restriction cannot be reapplied to an asset already forming part of the opening written-down value in the subsequent assessment year. Any such approach would, in effect, reopen the conclusion regarding acquisition and user already accepted in A.Y. 2011-12. 38. Thus, in view of the above, particularly the express terms of the agreement and the Tribunal's decision in the Assessee's own case for A.Y. 2011-12, we find no justification for restricting depreciation in A.Y. 2012-13 by treating the trademark as though it had been newly acquired or first put to use during the yea....
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....2021) 123 taxmann.com 38 (Bom.), wherein expenditure incurred towards a bridge used for transportation was held to be revenue in character, inter alia, because the bridge was not owned by the Assessee and the expenditure did not result in acquisition of any proprietary asset or permanent right in its favour. The Revenue, however, supported the orders of the authorities below and emphasised the enduring nature of the benefit and the non-recurring character of the payment. 45. We have heard the parties on this issue, perused the material available on record and given thoughtful consideration to the rival claims. It is well settled that the test of enduring benefit, though relevant, is not conclusive by itself. The real enquiry is whether the expenditure has brought into existence an asset or advantage in the capital field, or whether it has merely facilitated the carrying on of the existing business more efficiently and profitably without creating any independent capital asset or proprietary right in favour of the Assessee. 46. In the present case, the material available on record does not indicate that the Assessee acquired ownership over any part of the Goregaon-Mulund Link R....
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....pertains to the restriction of deduction in respect of scientific research expenditure to 100%, instead of allowing the weighted deduction at 200% claimed u/s. 35(2AB) of the Act. Since the basic legal controversy and substantial factual matrix are common, we take A.Y. 2012-13 as the lead year, while the distinguishing features arising in A.Ys. 2014-15 and 2015-16 are dealt with separately. 53. The year-wise expenditure, deduction claimed and additional weighted deduction disallowed are as under: A.Y. Capital expenditure Revenue expenditure Total expenditure Deduction claimed @ 200% Additional deduction disallowed 2012-13 Rs.22,67,98,517/- Rs.9,49,71,695/- Rs.32,17,70,212/- Rs.64,35,40,424/- Rs.32,17,70,212/- 2014-15 Rs.37,56,282/- Rs.16,16,19,137/- Rs.16,53,75,419/- Rs.33,07,50,838/- Rs.16,53,75,419/- 2015-16 Rs.69,32,563/- Rs.18,82,63,748/- Rs.19,51,96,311/- Rs.39,03,92,622/- Rs.19,51,96,311/- 54. Coming to A.Y. 2012-13 - Lead year, we observe that the material placed on record shows that the Assessee had established an in-house Research and Development facility at Bhandup, Mumbai, which had been recogn....
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....ms were delayed or were not issued by the authority within the relevant period. 60. The Assessee principally relied upon CIT v. Claris Lifesciences Ltd. (2010) 326 ITR 251 (Guj.) and CIT v. Sandan Vikas (India) Ltd. (2011) 335 ITR 117 (Del.) to contend that, where the prescribed approval substantively exists, weighted deduction cannot be denied merely because the approval was communicated subsequently or mentioned a later date. 61. On the contrary, the Ld. DR supported the orders of the authorities below and submitted that mere general recognition of an R&D facility by the DSIR was not equivalent to approval specifically contemplated u/s. 35(2AB). It was contended that approval of the facility by the prescribed authority and the agreement contemplated under sub-section (3), read with Rule 6, constituted substantive statutory requirements. Therefore, according to the Revenue, absence of the requisite approval could not be cured merely by showing general recognition of the R&D facility. 62. We have heard the parties on the issue, perused the material available on record and given thoughtful consideration to the rival claims. Section 35(2AB)(1), as applicable to the assessmen....
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....ement of approval contemplated u/s. 35(2AB) or the agreement contemplated under sub-section (3). A distinction must, therefore, be maintained between delayed communication of an existing approval and complete absence of the substantive approval itself. 68. In Apollo Tyres Ltd. v. ACIT (2022) 142 taxmann.com 466/284 Taxman 687 (Ker.), the agreement contemplated under section 35(2AB)(3) was treated as material to the statutory entitlement. Further, even in Claris Lifesciences Ltd. and Sandan Vikas (India) Ltd., approval by the prescribed authority was in existence and the controversy primarily concerned its effective period. 69. Thus, procedural deficiencies cannot be elevated, so as to defeat a substantive entitlement, where the prescribed approval otherwise exists; equally, the substantive statutory requirement itself cannot be presumed in the complete absence of material establishing such approval. 70. Thus, applying the aforesaid principles to the lead year A.Y. 2012- 13, we find that the Assessee's R&D facility stood recognised during the relevant period and its shifting from Bhandup to Halol was expressly approved by the DSIR vide letter dated 05.08.2011. The AO also a....
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....08.2011 and the recognition relied upon by the Assessee continued up to 31.03.2014. Therefore, the question of allocating expenditure between Bhandup and Halol, does not arise in the same manner, as in the lead year. 77. The verification for this year shall therefore remain confined to whether the recognition subsisting up to 31.03.2014, read with the approval for shifting, covered the Halol facility throughout the relevant previous year and whether the agreement contemplated u/s. 35(2AB)(3) operated during the relevant period. 78. If the substantive approval and agreement are found to cover the relevant previous year, the AO shall quantify and allow the eligible additional weighted deduction, after excluding expenditure expressly barred by the statute. 79. Coming to A.Y. 2015-16 case, we observe that the Assessee incurred aggregate R&D expenditure of Rs. 19,51,96,311/-, comprising capital expenditure of Rs. 69,32,563/- and revenue expenditure of Rs. 18,82,63,748/. Against the weighted deduction claimed at Rs. 39,03,92,622/-, the AO restricted the deduction to Rs. 19,51,96,311/- and disallowed the additional weighted component of Rs. 19,51,96,311/-. 80. For this assessm....
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....e of the condonation petitions; (iv) any Form 3CM subsequently issued and its operative date; (v) the agreement contemplated u/s. 35(2AB)(3) and the period covered thereby; (vi) facility-wise audited details of capital and revenue expenditure, wherever required; and (vii) whether any part of the expenditure represents the cost of land or building or otherwise falls outside the ambit of section 35(2AB). 86. We clarify that the remand is confined to the substantive approval, the statutory agreement, their operative periods and consequential quantification of eligible expenditure. The AO shall not insist upon annual quantification in Form 3CL by applying the amendment effective from 01.07.2016 to these assessment years. The actual incurrence of expenditure already accepted and allowed at 100% shall not be reopened, except for identifying duplication or expenditure expressly excluded by the statute. 87. Where the verification establishes that the substantive approval and agreement covered the relevant period, including where any subsequently issued approval is found to operate from the date of recognition, the corresponding additional weighted ....
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...., the aforesaid factual premise was thereafter corrected by the AO through corrigendum dated 31.12.2018, whereby it was clarified that the Assessee had in fact furnished Form 3CK as well as the approval of the prescribed authority in Form 3CM, and that the deficiency was confined to non-furnishing of Form 3CL. Thus, the controversy thereafter ceased to be one concerning absence of approval of the R&D facility and stood confined to the effect of quantification of expenditure in Form 3CL. 94. Subsequently, DSIR issued Form 3CL dated 29.11.2019, quantifying eligible expenditure at Rs. 28,05,98,125/-, comprising capital expenditure of Rs. 88,96,125/- and revenue expenditure of Rs. 27,17,02,000/-. The Assessee thereafter moved an application u/s. 154 and the AO, vide rectification order dated 29.10.2020, allowed weighted deduction on the expenditure quantified by DSIR. Consequently, as against the aggregate expenditure of Rs. 49,00,78,678/- claimed by the Assessee, weighted deduction stood recognised only with reference to Rs. 28,05,98,125/-, leaving the balance expenditure of Rs. 20,94,80,553/- in dispute. 95. The Ld. Commissioner affirmed the restriction principally on the reaso....
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....ended provision, the prescribed authority was required to furnish a report in Form 3CL in relation to approval of the in-house R&D facility. The specific requirement to quantify the expenditure incurred during the previous year and eligible for weighted deduction was expressly introduced only with effect from 01.07.2016. Therefore, the material question is whether the amount subsequently quantified by DSIR in Form 3CL could operate as an absolute ceiling for an assessment year governed by the pre-amended regime. 101. In ACIT v. Crompton Greaves Ltd. (2019) 111 taxmann.com 338 (Mum.-Trib.), the Coordinate Bench, after comparing the preamended and amended provisions, held that prior to 01.07.2016 there was no requirement for DSIR to quantify the eligible expenditure and that such mandate was introduced only by the amended Rule. Similarly, in Garware Technical Fibres Ltd. v. DCIT (2025) 171 taxmann.com 302 (Pune-Trib.), the Tribunal specifically considered A.Y. 2016-17 and held that the amended requirement of quantification by DSIR would not govern that assessment year in the same manner as subsequent years. 102. Applying the aforesaid legal position to the facts of the present ....
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....on arises as to whether an activity constitutes scientific research, the procedure prescribed u/s. 35(3) shall be followed. 107. The issue is, therefore, remanded to the file of the AO for the aforesaid limited verification, suffice to say, by affording a reasonable opportunity of being heard to the Assessee and considering the material and submissions placed/to be placed on record. If the balance expenditure of Rs. 20,94,80,553/-, or any part thereof, is found to have been incurred on the approved in-house R&D facility and otherwise satisfies the requirements of section 35(2AB), the corresponding weighted deduction shall be allowed. 108. Thus, the findings of the Ld. Commissioner on this issue are set aside and Ground No. 1 is allowed for statistical purposes, subject to the limited verification directed hereinabove. 109. Coming to the 4th issue, which pertains to foreign-exchange fluctuation u/s. 43A for A.Y. 2012-13, we observe that the Assessee claimed a loss of Rs. 60,76,984/- in the return of income. Subsequently, the Assessee sought to reconcile the foreign-exchange fluctuation entries and contended that, apart from the aforesaid loss, a revenue gain of Rs. 22,18,14....
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.... relates to 'PRE-OPERATIVE INTEREST - REVENUE'S APPEAL, A.Y. 2012-13', and challenged by the Revenue, we observe that the AO noticed Rs. 28,11,000/- reduced from pre-operative expenditure of the Halol project and taxed it as income from other sources, substantially following the assessment for A.Y. 2011-12. 116. The Ld. Commissioner deleted the addition, following the predecessor's order and the principles in Addl. CIT v. Indian Drugs & Pharmaceuticals Ltd., CIT v. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) and International Seaports (Haldia) (P.) Ltd. v. ITO. The Ld. Commissioner held as under: "In view of these facts and respectfully following the earlier decision, I am of the considered opinion that addition of Rs. 28,11,000/- is not maintainable. The addition made by the AO is, therefore, deleted." 117. The Revenue submitted that the Ld. Commissioner overlooked Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC), under which interest earned by temporary deployment of surplus funds before commencement is taxable as income from other sources unless the investment is inextricably linked to project implementation. It was also urged that th....
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..... 1,095.38 lakhs. A further disallowance requires a demonstrated nexus between interest-bearing borrowing and a non-allowable capital advance. A formula based only on aggregate figures does not establish such nexus. 124. We observe that judgements in CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom.) and South Indian Bank Ltd. v. CIT (2021) 438 ITR 1 (SC) recognise that, where mixed funds exist and interest-free funds are sufficient, the investment/advance may be presumed to come from interest-free funds; the statute does not impose a universal one-toone tracing requirement. No contrary cash-flow or direct nexus is identified here. 125. Thus, considering that the identifiable borrowing cost relating to capital work-in-progress had already been capitalised, no direct nexus with the capital advances was established and the Revenue brought no material to displace the findings of the Ld. Commissioner, the deletion of Rs. 19,96,603/- is affirmed. 126. Resultantly, the Revenue's respective grounds on this issue, for A.Y. 2012-13 are accordingly dismissed. 127. Coming to 7th issue, which relates to Disallowance u/s 14A read with Rule 8D - as involved in Revenue&#....
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....l mechanism prescribed under Rule 8D is not automatic. A general or formulaic observation, without demonstrating any defect in the Assessee's claim with reference to its accounts, does not satisfy the statutory requirement. 134. The Hon'ble Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (2017) 394 ITR 449 (SC) and Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC) has held that the AO must examine the accounts and record an objective satisfaction regarding the correctness of the Assessee's claim before applying Rule 8D. There must also be a proximate relationship between the expenditure sought to be disallowed and the earning of income which does not form part of the total income. 135. In the instant year, the Ld. Commissioner found that the Assessee possessed sufficient non-interest-bearing own funds to cover the relevant investments. The AO did not establish any direct nexus between the borrowed funds and the investments which yielded exempt income. In Reliance Industries Ltd. and South Indian Bank Ltd. v. CIT (2021) 438 ITR 1 (SC), it has been held that where interest-free own funds are sufficient to cover the investments, a presumption arises that the i....
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....assessment record. The Assessee had earned exempt domestic dividend of Rs. 7,44,11,280/-. Therefore, the controversy for this year is not whether section 14A could apply in the absence of exempt income. The actual questions are whether the AO recorded the satisfaction required under section 14A(2), whether any part of the interest expenditure was attributable to the relevant investments and whether the Rule 8D computation included investments yielding taxable income. 142. The Ld. Commissioner examined the financial position of the Assessee and found that its own non-interest-bearing funds were sufficient to cover the investments relevant for the purpose of section 14A. The Revenue has not brought on record any direct nexus between the borrowed funds and the investments which yielded exempt dividend. In the absence of such nexus, the presumption laid down in Reliance Industries Ltd. and South Indian Bank Ltd. applies in favour of the Assessee. 143. Merely because the Assessee maintained common or mixed funds would not justify an interest disallowance where the available own funds exceeded the relevant investments. The Revenue's contention that the presumption regarding utilisa....
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....the deletion principally on the grounds that the AO recorded the requisite satisfaction; that the presumption regarding utilisation of own funds was no longer available after recording such satisfaction; that the Explanation inserted in section 14A by the Finance Act, 2022 is retrospective; and that Rule 8D covers investments whose income "does not or shall not form part" of the total income. 150. The contention that the own-funds presumption becomes unavailable merely because the AO has recorded dissatisfaction cannot be accepted. The two principles operate in different fields. Satisfaction under section 14A(2) concerns the correctness of the Assessee's claim regarding expenditure, whereas the own-funds presumption determines the source from which the investments are treated as having been made. Even after recording satisfaction, the AO must establish, on the basis of the accounts, that borrowed funds were utilised for making the relevant investments. 151. The Revenue has not identified any material showing that borrowed funds were directly utilised for making investments which yielded exempt income. It has also not demonstrated that the factual finding of the Ld. Commission....
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....f the Act', we observe that the AO added the Rule 8D disallowance to book profit under clause (f) of Explanation 1 to section 115JB. The Ld. Commissioner however deleted such adjustments. 158. The Revenue thus argued that expenditure relatable to exempt income must be added back and relies on CIT v. Ajanta Pharma Ltd. (2010) 327 ITR 305 (SC). 159. On the contrary, the Assessee relies on ACIT v. Vireet Investment (P.) Ltd. (2017) 165 ITD 27 (Del.-SB) and the Bombay High Court orders referred to in the appellate record. 160. We have heard the parties on the issue, perused the material available on record and given thoughtful consideration to their rival claims. Section 115JB is a self-contained computational code. Clause (f) authorises addition of the amount of expenditure relatable to exempt income, which is debited to the profit-and-loss account. It does not incorporate section 14A or the Rule 8D formula. The Special Bench in Vireet Investment accordingly held that the computation under clause (f) must be made, without resort to the section 14A disallowance mechanism. The Bombay High Court in CIT v. Bengal Finance & Investments (P.) Ltd., ITA No.337 of 2013, noticed that t....