Income Tax Appellate Tribunal - Ahmedabad
Johnson Controls-Hitachi Air ... vs The Deputy Commissioner Of Income Tax, ... on 28 February, 2020
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'D' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 454/Ahd/2017 & 773/Ahd/2018 & C.O. Nos. 45 & 54/Ahd/2019 (in ITA Nos. 2603/Ahd/2017 & 2527/Ahd/2017) ( नधा रण वष / Assessment Years : 2011-12 & 2012-13, 2013-14 & 2014-15) Johnson Controls-Hitachi बनाम/ DCIT Air Conditioning India Vs. Circle-2(1)(1), Limited Room No.103, 1 s t Floor, [Formerly Known as Navjivan Trust Building, Hitachi Home & Life Ashram Road, Ahmedabad Solutions (India) Ltd.], 9 t h 380014 Floor, Abhijeet Mithakhali Six Roads, Ellisbridge, Ahmedabad 380006 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AABCA2392K अपीलाथ /Appellant / Cross .. यथ / Respondent Objector & आयकर अपील सं./I.T.A. No. 583/Ahd/2017, 895/Ahd/2018, 2603/Ahd/2017 & 2527/Ahd/2017 ( नधा रण वष / Assessment Years : 2011-12 & 2012-13, 2013-14 & 2014-15) The Assistant / The बनाम/ Johnson Controls-Hitachi Deputy Commissioner of Vs. Air Conditioning India Income Tax Limited Circle-2(1)(1), [Formerly Known as Room No.103, 1 s t Floor, Hitachi Home & Life Navjivan Trust Building, Solutions (India) Ltd.], 9 t h Ashram Road, Ahmedabad Floor, Abhijeet Mithakhali 380014 Six Roads, Ellisbridge, Ahmedabad 380006 I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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अपीलाथ /Appellant .. यथ / Respondent
अपीलाथ ओर से /Assessee by : Shri S. N. Soparkar, Sr. Advocate
& Shri Parin Shah, A.R.
राज व क ओर से/Revenue by : Shri Virendra Ojha, CIT.DR.
& Shri Vinod Tanwani,
Sr.D.R.
सन
ु वाई क तार ख / Date of
26/02/2020
Hearing
घोषणा क तार ख /Date of
28/02/2020
Pronouncement
आदे श/O R D E R
PER T. S. KAPOOR - AM:
This is a group of appeals filed by the assessee as well as by department. Appeals in ITA Nos. 454/Ahd/2017 & 583/Ahd/2017 & 773/Ahd/2018 & 895/Ahd/2018 for AY 2011-12 & 2012-13 are cross appeals and have been filed by the assessee & Revenue; respectively whereas rest of the appeals in ITA Nos. 2603 & 2527/Ahd/2017 have been filed by the Revenue in AYs. 2013-14 & 2014-15. Against these appeals filed by the Revenue, the assessee has filed cross objections in AY 2013- 14 & 2014-15. These appeals and cross objections involve similar issues and were heard together and therefore, for the sake of convenience, a common and consolidated order is being passed.
2. Grounds of appeal taken by the assessee as well as by the Revenue including additional grounds of appeal are reproduced below:
ITA No. 454/Ahd/2017 - A.Y. 2011-12 (Assessee's appeal)3. Grounds of appeal raised by the assessee read as under:
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer of a sum of Rs.22,32,326 being weighted deduction claimed u/s.35(2AB) pertaining to contract labour expenditure, professional fees and GET salary. I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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2. On the facts and in the circumstances of the case, the learned CIT(A) erred in not considering at all the additional claim of the appellant-company for deduction of Rs.10,71,019 u/s.35(2AB) in respect of domestic travel expenses incurred for the purpose of in-house research and development facility as approved by the Department of Scientific and Industrial Research (DSIR).
3. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance of Rs.37,982 being employees contribution to ESI on the ground that the same was not paid within the prescribed time limit even though the payment was made before the time limit for filing return of income u/s.139(1)."
4. Additional grounds raised by the assessee read as under:
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the alternate ground No.6.2 of the appellant to treat excise duty refund as capital receipt.
2. On the facts and in the circumstances of the case it is now submitted that the amount of refund of excise duty is a capital receipt and same needs to be reduced from the profit as per profit and loss account while calculating book profit u/s 115JB of the Act."ITA No. 583/Ahd/2017 - A.Y. 2011-12 (Revenue's appeal)
5. Grounds of appeal raised by the Revenue read as under:
"1. The Ld.CIT(A) has erred in law and on facts in deleting the upward adjustment made by the TPO amounting to Rs. 1,77,17,626/- without properly appreciating the facts of the case and the material brought on record.
2. The Ld.CIT(A) has erred in law and on facts in deleting the addition of capitalization of interest towards CWIP u/s.36(1)(iii) of the Act amounting to Rs. 19,65,643/- without properly appreciating the facts of the case and the material brought on record.
3. The Ld.CIT(A) has erred in law and on facts in allowing the forex gain of Rs.44,14,838/- while calculating the disallowance u/s.80IB of the Act without properly appreciating the facts of the case and the material brought on record."
6. Additional grounds raised by the Revenue read as under:
"1 Whether the Ld. CIT(A) has erred in law and on facts in treating the excise duty refund of Rs. 5,25,50,952/- received as a result of establishment of Industrial undertaking in an industrial backward state i.e Jammu & Kashmir to be eligible for computation of deduction u/s. 80IB of the Act?
1.1 That the Ld. CIT(A) has failed to appreciate that the excise duty refund are incentives which flow from the scheme of the Government and are not profits derived from the eligible business u/s. 80IB.
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1.2 Whether the Ld. CIT(A) has grossly erred in law by not appreciating and
applying the decision of the Hon'ble SC in the case of Liberty India vs. CIT (2009) 183 Taxmann 349 (SC) that such receipts do not form part of the net profit of the eligible business undertaking for the purpose of section 80IB of the Act?"ITA No. 773/Ahd/2018 - A.Y. 2012-13 (Assessee's appeal)
7. Ground of appeal raised by the assessee reads as under:
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance made by the Assessing Officer of a sum of Rs.12,06,000 being weighted deduction claimed u/s.35(2AB) pertaining to contract labour expenditure and GET salary."
8. Additional grounds raised by the assessee read as under:
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the alternate ground No.4.2 of the appellant to treat excise duty refund as capital receipt.
2. On the facts and in the circumstances of the case it is now submitted that the amount of refund of excise duty is a capital receipt and same needs to be reduced from the profit as per profit and loss account while calculating book profit u/s 115JB of the Act."ITA No. 895/Ahd/2018 - A.Y. 2012-13 (Revenue's appeal)
9. Grounds of appeal raised by the Revenue read as under:
"1. The Ld CIT(A) erred in deleting the upward adjustment made by the TPO of Rs 16362327/- on account of benchmarking of royalty payment.
2. The Ld CIT(A) erred in law and on facts in treating the excise duty refund as a profit derived from business of industrial undertaking for the purpose of computation of deduction u/s 80IB of the IT Act 2.1 The Ld CIT(A) has erred in law and on facts by not appreciating that the ratio decidendi of the Hon'ble Supreme Court in the case of Liberty India Ltd (317 ITR 218) was fully applicable to the facts of the instant case.
2.2 The Ld CIT(A) has erred in law and on facts by not appreciating that the assessee had paid the Excise Duty and was refunded only because of the incentive scheme designed by the Government therefore such refund was not income derived from industrial undertaking.
2.3 The Ld CIT(A) has erred in law by placing reliance on the decision of the Hon'ble Delhi High Court in the case of Dharampal Premchand (supra) as this decision was rendered earlier to the decision of the I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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Hon'ble Supreme Court in the case of Liberty India wherein the decision of the case of Eltek SGS Pvt Ltd and India Gelatine & Chemicals Ltd (on which reliance has been placed) was specifically disapproved by the Hon'ble Supreme Court."ITA No. 2603/Ahd/2017 - A.Y. 2013-14 (Revenue's appeal)
10. Grounds of appeal raised by the Revenue read as under:
"1 Whether the Ld. CIT(A) has erred in law on facts in deleting the addition of Rs.
2,01,35,432/- made on account of upward adjustment in respect of international transaction on royalty payment on basis of ALP determined by TPO u/s. 92 of the I.T. Act?
2 The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s.
80IB(4) of the Act of Rs. 88,76,564/- being the excise duty incentive received as a result of establishment of Industrial undertaking in an industrial backward state i.e Jammu & Kashmir?
2.1 That the Ld. CIT(A) has Failed to appreciate that the excise duty refund are incentives which flow from the scheme of the Government and are not profits derived from the eligible business u/s. 80IB.
2.2 Whether the Ld. CIT(A) has grossly erred in law by not appreciating and applying the decision of the Hon'ble SC in the case of Liberty India vs. CIT (2009) 183 Taxmarm 349 (SC) that such receipts do not form part of the net profit of the eligible business undertaking for the purpose of section 80IB of the Act."
C.O. No. 45/Ahd/2019 - A.Y. 2013-14
11. Grounds of appeal raised by the assessee read as under:
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the disallowance of weighted deduction of Rs.3,09,000 claimed by the Respondent-company u/s.35(2AB) of the I.T. Act.
2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming addition of Rs.2,08,126 being Employees' contribution to ESI on the ground that the same was paid beyond the due date prescribed under the ESI Act even though the payment was made within the time limit of Section 139(1) of the I.T. Act."
12. Additional grounds raised by the assessee in cross objection read as under:
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the alternate ground No.4.2 of the respondent to treat excise duty refund as capital receipt.
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2. On the facts and in the circumstances of the case it is now submitted that the amount of refund of excise duty is a capital receipt and same needs to be reduced from the profit as per profit and loss account while calculating book profit u/s 115JB of the Act."ITA No. 2527/Ahd/2017 - A.Y. 2014-15 (Revenue's appeal)
13. Grounds of appeal raised by the Revenue read as under:
"1 The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s.
80IB(4) of the Act of Rs. 1,43,61,380/- being the excise duty incentive received as a result of establishment of Industrial undertaking in an industrial backward state i.e Jammu & Kashmir?
1.1 That the Ld. CIT(A) has failed to appreciate that the excise duty refund are incentives which flow from the scheme of the Government and are not profits derived from the eligible business u/s. 80IB 1.2 Whether the Ld. CIT(A) has grossly erred in law by not appreciating and applying the decision of the Hon'ble SC in the case of Liberty India vs. CIT (2009) 183 Taxmann 349 (SC) that such receipts do not form part of the net profit of the eligible business undertaking for the purpose of section 80IB of the Act."
C.O. No. 54/Ahd/2019 - A.Y. 2014-15
14. Grounds of appeal raised by the assessee read as under:
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in not allowing the ground No.2.2 of the appellant to treat excise duty refund as capital receipt.
2. On the facts and in the circumstances of the case it is now submitted the amount of refund of excise duty is a capital receipt and same needs to be reduced from the profit as per profit and loss account while calculating book profit u/s 115JB of the Act."
15. At the outset, the counsel for the assessee took up the appeal of assessee in ITA No.454/Ahd/2017 and in respect of the first ground of appeal submitted that the assessee has claimed weighted deduction under s.35(2AB) of the Act which the AO had restricted the claim by disallowing an amount of Rs.22,32,326/- by holding that such expenditure for whole of the year was not found eligible as per the order of DSIR. The learned AR in this respect invited our attention to the order of the AO at page no.27 where he has noted that the claim of deduction under s.35(2AB) of the Act on account of in-house R & D (capital and revenue expenditure) to be considered for the whole of the year relying on the judgment of Hon'ble Gujarat High Court in the case of Claries I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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Lifescience Ltd. 326 ITR 251 (Guj). It was submitted that in succeeding para the AO has held that a part of expenditure relating to contract labour, professional fees and GET salary was not allowable as the DSIR had excluded the same for allowance under s.35(2AB) of the Act. The learned AR in this respect submitted that once the facility of in-house R&D is approved by DSIR the whole of the expenditure has to be allowed and in this respect relied on the judgment of Hon'ble Gujarat High Court in the case of Claries Lifescience Ltd. 326 ITR 251 (Guj) and further relied on the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Sun Pharmaceuticals Ltd. [2017] 85 taxmann.com 80 (Guj). The learned AR therefore argued and the disallowance sustained by learned CIT(A) is not justified and needs to be deleted.
16. As regards the claim of domestic travel expenses under s.35(2AB) of the Act amounting to Rs.10,71,019/-, learned AR submitted that though such claim was not made before the AO but specific ground was taken before the learned CIT(A) to allow this expenditure also as part of deduction under s.35(2AB) of the Act but the learned CIT(A) did not make any finding. The learned AR submitted that since this expenditure also related to in-house R&D activities of the assessee, the same also needs to be allowed in view of the judgment of Hon'ble Gujarat High Court in the case of Claries Lifescience Ltd. 326 ITR 251 (Guj).
17. Arguing Ground No.3, the learned AR submitted that this ground is regarding employees' contribution to ESI which is against the assessee therefore can be dismissed.
18. Arguing additional ground no.1 of appeal, the learned AR submitted that alternate Ground No.6.2 before the CIT(A) was to allow to treat excise duty refund as capital receipt which he did not adjudicate and in stead following his own order in ay 2008-09 and 2009-10, he deleted the addition on the first ground itself. The learned AR in this respect relied on the judgment of Ahmedabad Tribunal in the case of assessee itself for AYs. 2008-09 to 2010-11 where the Hon'ble Tribunal had treated the receipt of excise duty as capital receipt. Therefore, it was argued that following the judgment in the case of assessee itself, the excise duty refund received by the assessee needs to be treated as capital receipt.
I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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19. Arguing the Ground No.2 of additional ground, the learned AR submitted that since the refund of excise duty is a capital receipt, therefore, the same needs to be reduced from the profit as per P&L account while calculating book profit under s.115JB of the Act and reliance in this respect was placed on the judgment of Sicpa India (P.) Ltd. 80 taxmann.com 87 (Kol).
20. The learned CIT.D.R. replying to the arguments of learned AR invited out attention to the findings of AO and submitted that while Assessing Officer agreed with the contention of assessee that deduction is to be allowed for the full year but he had made disallowance only for those expenses which were not considered by the DSIR in its certificate and since DSIR is the authority certifying the amount of expenditure eligible for deduction under s.35(2AB) of the Act, the authorities below had rightly made and sustained the disallowance.
21. As regards the claim of assessee regarding deduction for domestic travel expenses under s.35(2AB) of the Act, the learned DR submitted that the claim was not made before the AO and therefore, the learned CIT(A) has rightly not adjudicated the same.
22. As regards the additional ground of appeal taken by the assessee, the learned DR relied the orders of the authorities below.
23. Arguing the appeal of the department in ITA No. 583/Ahd/2017 for AY 2011- 12, the learned DR submitted that learned CIT(A0 has wrongly deleted the adjustment of TPO without properly appreciating the facts of the case. However, he fairly admitted that the learned CIT(A) had followed AYs. 2008-09 to 2010-11 for allowing relief to the assessee.
24. As regards ground no.2 regarding deletion of addition of capitalization of interest towards CWIP, the learned DR further placed his reliance on the order of the AO.
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25. As regards ground no.3, the learned DR again relied upon the order of the AO who had rightly made disallowance of forex gain while allowing deduction claimed under s.80IB of the Act.
26. Regarding additional ground of appeal, the learned DR argued that the learned CIT(A) has wrongly treated excise duty refund to be eligible for deduction under s.80IB of the Act.
27. The learned AR, on the other hand, submitted that as regard the upward adjustment made by TPO, the learned CIT(A) has followed his earlier orders in AY 2008-09 to 2010-11 and since the facts and circumstances remained same, the same needs to be allowed.
28. As regard the second ground regarding capitalization of interest towards CWIP under s.36(1)(iii) of the Act, the learned AR submitted that assessee had surplus funds therefore the CIT(A) had rightly allowed relief to the assessee and reliance in respect was placed on the judgment of Hon'ble Supreme Court in the case of Reliance Industries Ltd. 410 ITR 466 (SC) and on the judgment of Raghuvir Synthetics Ltd. 354 ITR 222 (Guj.).
29. As regards allowance of forex gain while calculating allowance under s.80IB of the Act, the learned AR stated that the learned CIT(A) has followed his own order for AY 2008-09.
30. As regards the eligibility of excise duty refund for deduction under s. 80IB of the Act, the learned CIT(A) has again followed his own order in AYs. 2008-09 & 2009-
10.
31. As regards assessee's appeal in ITA No.773/Ahd/2018 for AY 2012-13, the learned AR submitted that the only issue in this appeal is similar to ground no.1 in ITA No.454/Ahd/2017 for AY 2011-12 and additional ground nos. 1 & 2 are similar to additional ground nos. 1 & 2 in ITA No.454/Ahd/2017 and therefore his arguments will remain same.
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32. As regards Revenue's appeal in ITA No. 895/Ahd/2018, the learned DR submitted that ground no.1 is similar to ground no.1 in ITA No. 583/Ahd/2017 whereas ground no.2 is similar to additional ground of appeal in ITA No.583/Ahd/2017 and therefore his arguments will remain same.
33. As regards Revenue's appeal in ITA No. 2603/Ahd/2017, the learned DR submitted that ground no.1 is similar to ground no.1 in ITA No. 583/Ahd/2017 whereas ground no.2 is similar to additional ground of appeal in ITA No.583/Ahd/2017. Similarly, the learned DR stated that Ground No.1 in ITA No. 2527/Ahd/2017 is similar to additional ground in ITA No. 583/Ahd/2017 and ground no.2 in ITA No. 2603/Ahd/2017.
34. Arguing the cross objection no. 45/Ahd/2019 in ITA No. 2603/Ahd/2017, the learned AR submitted that the learned CIT(A) has wrongly confirmed disallowance of weighted deduction of Rs.3,09,000/- claimed under s.80IB of the Act and as regards ground no.2 regarding addition on account of employees' contribution to ESI, the learned AR fairly agreed that the same was against the assessee.
35. As regards the arguments on CO No.54/Ahd/2019, the learned AR submitted that ground no.1 is similar to additional ground no.1 in ITA No.454/Ahd/2017 which is in not treating the excise duty as capital receipt and similarly ground no.2 regarding capital receipt to be reduced from profit under s.115JB of the Act is similar to additional ground no.2 in ITA No. 454/Ahd/2017.
36. We have heard the rival parties and have gone through the material placed on record.
37. First we take up assessee's appeal in ITA No.454/Ahd/2017.
ITA No. 454/Ahd/2017 - A.Y. 2011-12 (Assessee's appeal)38. Ground No.1 is against the action of the learned CIT(A) by which he has confirmed the disallowance which the AO had made on account of rejection of claim made by the assessee on account of weighted deduction on account of certain I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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expenditures. The AO on the one hand agreed that the contention of the assessee was correct that once in-house R&D was granted approval by DSIR, the whole of the capital and revenue expenditure for the whole of the year was allowable deduction. However, in the succeeding para, relying on the report of DSIR, the AO disallowed certain expenditures of contract labour, professional fees and GET salary by holding that these expenses were not approved by the DSIR as eligible for the claim of deduction under s.35(2AB) of the Act. Before the learned CIT(A), detailed submissions regarding eligibility of the assessee to claim weighted deduction for such expenditure was made. The individual expenses regarding contract labour expenses, professional fees and GET salary were also explained and the provisions of Section 35(2AB) of the Act were relied. It was prayed that assessee was eligible for deduction of all expenditures, if the facility of in-house R&D is approved, however, the learned CIT(A) dismissed this ground no.1 of the assessee that and held that assessee was not entitled to get the weighted deduction of R&D in the deduction as no approval has been granted by DSIR. We however are not in agreement with the findings of learned CIT(A) as the Hon'ble Gujarat High Court in the case of CIT vs. Claries Lifescience Ltd. [2010] 326 ITR 251 (Guj) has clearly held that once facility is approved, the entire expenditures so incurred in development of R&D facility has to be allowed for weighted deduction as provided by Section 35(2AB) of the Act. For the sake of completeness, the findings of the Hon'ble Gujarat High Court are reproduced below:
"2. The brief facts giving rise to present appeal are that the assessee had set up in- house Research & Development Facility and incurred capital and revenue expenditure. The assessee applied to Ministry of Science & Technology, Department of Scientific & Industrial Research (DSIR) on 7-8-2000 for approval. However, the approval was given only on 27-2-2001. In the approval letter by a note, it was mentioned that the facility approved for the purpose of section 35(2AB) was from 27-2-2001 till 31-3-2003. In the return filed by the assessee, it had claimed the weighted deduction under section 35(2AB), i.e., 1 ½ times of the expenses incurred on the entire expenditure incurred on establishment of the income of the facility. However, during the course of assessment proceedings, the Assessing Officer held that as approval under section 35(2AB) has been granted with effect from 27-2-2001, the deduction for expenditure incurred only from this date will be eligible for weighted deduction and accordingly, disallowed the weighted deduction on the expenditure incurred before 27-2-2001.
3. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the CIT (Appeals), who upheld the action of the Assessing Officer. Being further aggrieved by the order of the CIT(Appcals), the assessee took up the matter before the Tribunal. The Tribunal adjudicated the whole issue and held that this section has been introduced with a view to encourage research and development in industrial sector and nowhere it is mentioned that "R&D" facility is to be approved from a particular date. In other words, it is nowhere suggested that the expenses would be I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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allowable as deduction only from the date of approval or only from a cutoff date, expenses incurred can be claimed as deduction. The Tribunal has further held that once the facility is approved, the entire expenditure so incurred has lo be allowed as provided by section 35(2AB).
It is this order of the Tribunal against which the present Tax Appeal is filed by the revenue.
4. Mrs. Mauna M. Bhatt, learned Standing Counsel appearing for the revenue has submitted that section 35(2AB) is very clear and it says that expenditure incurred on in- house research and development facility, as approved by the prescribed authorities, has to be allowed as deduction. She has further submitted that while granting approval, it was made clear that with effect from that date onwards, the approval had come into force and, hence, expenditures incurred prior to that date are not to be allowed. She has submitted that in any case, there is a question regarding interpretation of section 35(2AB) of the Act, which certainly gives rise to the question of law and it has to be determined by this Court after formulating the said question.
5. We have considered the submissions made by the learned Standing Counsel appearing for (he revenue and we have also perused the orders passed by the authorities below.
6. The Tribunal has discussed this issue at length in its order. It was contended by the assessee before the Tribunal that nowhere the provisions provide that expenditure from the date of approval only has to be allowed, in the absence of those words, such conditions cannot be imputed in the statute by the lower authorities. Doing so amounts to reading more in the law which is not expressly provided. The words used are any expenditure incurred by the assessee on scientific research on the in-house "R & D"
facility approved by the prescribed authorities has lo be allowed by deduction of expenditure so incurved. Meaning of these words is plain and clear that the facility is to be established first and on approval of the facility all the expenditure so incurred by the assessee for development of in-house facility is to be held as eligible for weighted deduction. Form No. 3CM which is order of approval as provided by the rules in this behalf also does not have any mention of date of approval rather it speaks of only approval. The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the "R & D" facility, expenditure so incurred is eligible for weighted deduction.
7. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of (i) development of facility; (ii) incurring of expenditure by the assessee for development of such facility; (iii) approval of the facility by the prescribed authority, which is "DSIR"; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. The provisions nowhere suggest or imply that "R & D" facility is to be approved from a particular date and in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has. therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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development of "R & D" facility has to be allowed for weighted deduction as provided by section 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that lo boost up R&D facility in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure, Since what is stated to be promoted was development of facility, intention of the Legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction.
8. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee."
Therefore, in view of the judgment of Hon'ble Gujarat High Court, we allow ground no.1 of the appeal.
39. As regards ground no.2 relating to additional claim for domestic travel expenses under s.35(2AB) of the Act, we find that AO had not made any disallowance regarding this claim and first time the claim was made before the learned CIT(A). Therefore, we deem it proper to remit the issue back to the AO for considering the same in accordance with law. In view of the above, ground no.2 is allowed for statistical purposes.
40. As regards ground no.3, this ground is already against the assessee and he has not argued the same and therefore, the same is dismissed as not pressed.
41. As regards ground no.1 & 2 of additional ground, we find that the grievance of the assessee is that learned CIT(A) had not allowed the alternative ground no.6.2 to treat the excise duty refund as capital receipt and it held to be capital receipt was liable to be excluded while calculating book profits under s.115JB of the Act. In this respect, we find that learned CIT(A) has allowed relief to the assessee by agreeing to the first contention of assessee that such excise duty refund was eligible for exemption under s.80IB of the Act. For the sake of completeness the findings of learned CIT(A) are reproduced below:
"7.3. Decision:
I have carefully considered the facts of She case, assessment order and submission made through statement of facts filed by the appellant. The AO has held that the Excise Duty refund received by the appellant was not a profit derived trom the business of industrial undertaking, but it was o result of establishment of industrial I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 14 -
undertaking in industrially backward area. On going through the facts of the case, if is seen that identical issue on similar facts has been decided in appellant's own case by this office in immediately preceding year vide appellate order No. CIT(A)-VII/122/DC Cir.4/2014-15 and now CIT(A)-2/191/DC Cir.4/2014-15 dated 27/01/2016. The relevant findings given in that order ore reproduced hereunder-
"6.2: Decision I have considered the facts of the case, Assessment Order and appellant's contentions. Since the identical issue was also involved in the case of the appellant in the A.Y. 2009-10 and the same has been decided in favour of the appellant. For ready reference the relevant part of the decision of the ld.CIT(A)-VIII, Ahmedabad vide its orderdtd.21.5.2014 is reproduced as under:-
" I have considered the facts of the case, Assessment Order and appellant's contentions. While passing Appellate Order for A.Y 2008-09 vide Appeal No. CIT(A)-VIII/ACIT/Cir.4/436/11-12 dated 25-07-2013 similar issue was decided as under:
"I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The A.O has held that the Excise Duly refund received by the appellant was not a profit derived from the business of industrial undertaking but it was a result of establishment of industrial undertaking in industrially backward area. He held that it was an incentive and not the profit derived from any business and accordingly, it was not eligible for deduction under section 80-lB. The appellant has submitted that the excise duty refund is an integral part of business activity and therefore, ii should be allowed deduction under section 80IB on the. same. "
After considering the facts it is noted (hat the appellant at the time of manufacturing arid clearing the goods pays the excise duty from its P &. L account after taking the due credit of CENVAT which ix available on account of purchase of raw material. The excise Duty which cannot be adjusted from the credit available to it is paid by the company. The statement including the total excise duly, the credit taken for CENVAT and the excise duty paid is submitted to the excise authorities claiming the refund. The authorities after verifying the details grant the refund of the Excise Duty. Therefore, the whole process clearly shows that the excise duty which is paid is refunded to the appellant. Therefore, there is no net gain to the appellant The excise duty which is paid is refunded and therefore, resultant effect is NIL The payment of Central Excise Duty has a direct nexus with the manufacturing activity and similarly the refund of Central Excise Duty also has a direct nexus with the manufacturing activity Therefore, there was an inextricable link between the manufacturing activity, the payment of Central Excise Duty arid its refund. Therefore, it is "derived" from the business of the industrial undertaking and eligible for deduction under section 80 IB.
It is further noted that the issue is squarely covered in the favour of appellant by several judgments of High Court as well as IT AT. Recently, the honourable B Bench of Ahmedabad ITAT in case of Electro- Ferro Alloys ITA No.4523 to 4527/Ahd/2007 and CO No. 17I/Ahd/2008 has laken a similar view and decided the issue in favour of the assessee.
In view of the above mentioned discussion and the judicial pronouncements it is held that the excise duly referred is entitled for deduction I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 15 -
under section 80 IB. The disallowance made by the A.O is directed to be deleted.
The ground of appeal is accordingly allowed.
The appellant has also raised two alternative grounds 7.1 and 7.2 in which it has been pleaded (hat the benefit of excise duty refund is capital in nature. Since I have already held that the excise duty referred is ptui ufihc business receipt and is entitled for deduction under section SO IB the alternatne ground taken by the appellant does not survive and need not be decided. The same are dismissed accordingly.
As the observation of the Assessment order, argument of the appellant are similar to the previous assessment year, following the finding given for A. Y 2008-09 disallowance of deduction u/s 80IB on the exci.ie Duty made by A. O is directed to be deleted. Alternative grounds of appeal therefore, do not survive for decision and the same are dismissed accordingly."
6.3. As the observation of the Assessment order, argument of the appellant are similar to the previous assessment year, following the finding given for A.Yrs. 2009-10 & 2008-09 disallowance of deduction u/s 801B on the excise Duty made by A.O is directed to be deleted. Alternative grounds of appeal therefore, do not survive for decision and the same are dismissed accordingly,"
7.4. In view of the above facts of the case, following the finding given for A. Ys. 2009-10 & 2008-09 and considering the fact that identical issue on similar facts has been decided by this office in immediately preceding year, disallowance of deduction u/s. 80IB on the excise duty made by the AO is directed to be deleted. Alternative grounds of appeal therefore do not survive for decision and the same are dismissed accordingly."
42. The above findings clearly demonstrate that learned CIT(A) has treated the excise duty refund as derived from the business of industrial undertaking and eligible for deduction under s.80IB of the Act. The above findings of leaned CIT(A) has also been confirmed by Hon'ble Tribunal in the case of assessee itself in AY 2008-09 to AY 2010-11. The findings of Hon'ble Tribunal in AY 2008-09 are reproduced below:
"35. We have heard the rival contentions and perused the materials available on record. In our considered view, the excise duty refund has a live link with the business activities of the assessee. Therefore, we hold that the excise duty refund is eligible u/s. 80IB(4) of the Act. In this regard, we support and guidance from the judgment of Hon'ble Supreme Court in the case of Meghalaya Steel Ltd. reported in 383 ITR 217, wherein it was held as under:
"Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production of I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 16 -
goods of a particular business would also have to be included under the head "profits and gains of business or profession", and not under the head "income from other sources"."
36. We also find support and guidance from the order of this Tribunal in the case of M/s. Cadila Pharmaceuticals Ltd. Vs. DCIT in ITA No.1117/Ahd/2012 vide order dated 11/09/2017, wherein it was held as under:
"21. The assessee's fifth substantive ground challenges Section 80IB deduction disallowance of Rs. 16,34,58,692/- out of total claim of Rs. 53,25,79,553/; as made by the lower authorities. The above disallowance figure involves excise duty refund amount of Rs. 8,12,71,702/-. The DRP quoted hon'ble apex court's decision in Liberty India vs. CIT (2009) 317 ITR 218 in concluding the above excise refund to be not an income derived from the eligible industrial undertaking. We find that earlier co-ordinate bench in assessment year 2007-08(supra) had followed hon'ble Apex court's recent decision in CIT vs. Meghalaya Steel Ltd. Civil Appeal no.7622/2014 in holding that such a refund by way of an incentive subsidy results in reimbursement of cost of production as covered u/s.28 of the Act. The Revenue fails to rebut this factual and legal position. We therefore treat assessee's above excise refund component to be an income eligible for Section 80IB deduction."
37. In view of the above, we hold that the assessee is eligible for deduction u/s 80IB(4) of the Act in respect of excise duty refund. Accordingly, we do not find any reason to interfere with the order of the Ld. CIT(A)."
43. Therefore, once the excise duty refunds has been held to be arising from manufacturing activity and is included in the profits eligible to be exempt under s.80IB of the Act, the grievance of the assessee that such receipts should have been treated as capital receipt is contradictory as by including in the P&L account and allowing the benefit under s.80IB of the Act such refunds have already been held to be revenue in nature. An item of receipt can be treated as revenue as capital depending upon its nature. The same item cannot be said to be both revenue as well as capital in nature.
44. Therefore, in our considered opinion, the additional grounds taken by assessee, are not required to be adjudicated therefore, same are dismissed as infructuous.
45. In view of the above, the appeal filed by the assessee in ITA No.454/Ahd/2017 is partly allowed.
ITA No. 583/Ahd/2017 - A.Y. 2011-12 (Revenue's appeal)46. Now coming to ITA No.583/Ahd/2017 filed by the Revenue, we find that ground no.1 of the appeal is covered against the Revenue by the order of Tribunal in I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 17 -
AYs. 2008-09 to 2010-11 where the Hon'ble Tribunal under similar facts and circumstances has dismissed the appeal of the Revenue by holding as under:
"10. We have heard the rival contentions and perused the materials available on record. At the outset, we find that the ITAT in assessee's own case involving identical issue has deleted the addition made by the TPO in ITA No. 2119/Ahd/2011 for AY 2007- 08 vide order dated 29/08/2018. The relevant extract of the order is reproduced as under:
"6. We have heard both the sides and perused the material on record carefully. The assessing officer has made upward adjustment with reference to international transaction u/s. 92B in respect of royalty payment to associated enterprise as per order passed u/s. 92CA(3) of the IT Act. In respect of payment of royalty by the assess to the associate concerns the TPO has applied the rate of royalty payment 3% in respect of computation of royalty rate as against rate of 3.75% adopted by the assessee. We find that an identical issue in the case of the assessee itself was decided by the Co-ordinate Bench of the ITAT vide ITA No. 182, 216 & 1137/Ahd/2011 against the revenue pertaining to assessment year 2005-06 and 2006-07. The relevant part of the decision of the ITAT is reproduced as under:-
"15. We have considered rival submissions and perused the material available record. We find that the CIT(A) while deleting the addition has noted that facts of the case of the assessee in this year are identical to the earlier years, and he had followed the decision of his predecessor. We further find that in ITA No. 2363/Ahd/2008 for A.Y.2004-05, similar issue was decided by the Co-ordinate Bench of 1TAT in favour of the assesee and the addition was deleted following the order in Revenue's appeal for A.Y.2003-04 in ITA No.2281/Ahd/2007, while deciding the Revenue's appeal, the issue was decided by holding as under:
"36. We have considered rived submissions and perused the material on record, and gone through the orders of the authorities below. We find that the issue regarding payment of royalty at the rate of 3.75% to the AE by the assessee, as against the royalty at the rate of 3% by other group entities, it was explained by the assessee before the AO that the royalty at 3.75% was applied after reducing various expenses from ex- factory sale value of the concerned products. It was also explained before the learned CIT(A) that if the effective rate is considered, then the effective rate of royalty is less than the royalty paid by other AEs to Hitachi Limited i.e., parent company. In our considered opinion, only stated rate is not decisive and effective rate has to be considered, and when the amount of royalty paid by the assessee is considered with ex- factory sale value, without deducting various expenses, such as dealer commission, special commission, warranty etc., as has been noted by the learned CIT(A) at page no.4 of his order, then the effective rate worked out is only 2.3% on sale, as against 3% paid by oilier group entities. This finding of the fact given by learned CIT(A) could not be controverted by the learned DR of the Revenue, and hence, on this aspect, we hold that no interference is called for in the order of the learned CIT(A), and accordingly, the ground no.5 of the Revenue is rejected. "
I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 18 -
Since the facts in the year under appeal are identical to earlier years as admitted by both the parties, we find no reason to interfere with the order of the CIT( A) on this issue, and thus, this ground of the Revenue is dismissed."
Respectfully following the decision of Co-ordinate Bench as cited above on identical facts and issue involved during the year under consideration we do not find any merit in the appeal of the revenue, therefore, the same is dismissed."
11. As the issue involved in appeal on hand is identical to the issue as discussed above, therefore respectfully following the same, we do not find any reason to interfere with the order of the Ld. CIT(A). Accordingly, we direct the Assessing Officer to delete the addition made by him as suggested by the TPO. Hence, the ground of appeal of the Revenue is dismissed."
47. In view of the above, following the judicial precedent in the case of assessee itself ground no.1 of Revenue's appeal is dismissed.
48. As regards ground no.2 regarding disallowance under s.36(1)(iii) of the Act, we find that learned CIT(A) has made a finding of fact that interest free funds during the year had increased from the earlier year and such funds were much more than interest free advances and CWIP investments were for the purpose of business. The learned CIT(A) has therefore rightly deleted the addition relying on various case laws noted by him in his order at page 51 to 55. The Revenue was not able to controvert the detailed findings of learned CIT(A) and therefore finding no infirmity in the order of learned CIT(A). Ground no.2 is dismissed.
49. As regards ground no.3 regarding allowing forex gain while calculating disallowance under s.80IB of the Act, we find that learned CIT(A) has followed his order in AY 2008-09 in ITA No. 2399/Ahd/2013 and has allowed relief to the assessee by holding as under:
"8.3 Decision:
I have carefully considered the facts of the case, assessment order and submission made through statement of facts filed by the appellant. The AO has made the disallowance of the claim of deduction u/s.80IB in respect of the foreign exchange fluctuation gain earned by the appellant during the year. It has been held by him that the gain does not pertain to the business activity and was accordingly held to be income from other sources.
8.4. On going through the facts of the case, it is seen that the appellant's case is covered by the decision given by C1T(A) - VIII, Ahmedabad in appellant's own case for A. v. 2008-09 vide appellate order No.CIT(A)-VIII/ACIT/Cir.4/436/11-12 dated 25/07/2013. The relevant findings given in that order are reproduced hereunder:-
I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 19 -
"7.3 DECISION
I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The A.O has made the addition on account of foreign exchange fluctuation gain earned by the appellant during the year. It has been held by him that the gain does not pertain to the business activity and was accordingly any income from other sources. Consequently the deduction under section 80 IB has been denied on the gain. The appellant has submitted that the action of the A.O was wholly unjustified as the foreign exchange fluctuation has accrued due to the business activity of the eligible unit and therefore it was entitled for deduction under section 80 IB.
It is noted from the facts that, the Gain on foreign exchange fluctuation has arisen on transaction of import of raw materials and revaluation of working capital borrowing in foreign currency. Both these transactions have a direct bearing on the profit or the revenue of the appellant company. Consequently any gain / loss arising there-from. constitute revenue gain / loss. The fact that foreign exchange fluctuation gain has arise in on account of some item which is a capital nature is not there. It is an undisputed fact that that payment for material as well as working capital loan are a revenue item is and any expenditure for import of material as well as interest on working capital loan repayment are taken into account while working out the profit of the appellant company. The appellant has recorded the transactions at the rate of foreign exchange prevailing on the date of transaction. On subsequent settlement or revaluation of liability, any change in the rate of foreign currency is recognised as income or expenditure in the year when such liability is settled or revalued in the balance sheet. The raw material purchase is for the manufacturing process and the working capital is for meeting its day-today operations. Therefore, it is clear that there is a direct nexus with the business of the eligible unit and the accrual on account of exchange fluctuation cannot be held or considered to be a separate and independent source of income. It is also noted that the AO while treating the fluctuation gain of the eligible unit as income from other sources there is the gain in the other unit which was not eligible for deduction has been taxed as business income. It is further observed that the appellant has been following the practice of showing the fluctuation gain or loss as profit or loss of the business. It has been further pointed out by the appellant that the appellant has incurred loss in the succeeding year which has been reduced from the profit of eligible unit.
The appellant has rightly relied on several judgements of the ITAT and High Court wherein it has been held that the difference on account of exchange rate fluctuation was liable to be allowed under section 80 IB. The following judgements support the view: -
i. CIT Vs. M/s. Rachna Udhog 35 DTR 65 (Bom),
ii. M/s Asia Pacific Marbles Pvt. Ltd. VS. DCIT ITA
No.1217/Mum/2008
iii. CIT Vs M/s Syntel Ltd 2010-TIOL-76-HC-MUM-IT (Bombay HC)
iv. Jay Chemicals ITA No.841/Ahd/2006 Dated 28/08/2009
In view of the above discussion, it is held that Foreign Exchange Fluctuation Gain has accrued due to the business activity of the eligible unit and accordingly the same should be considered as the profit of Jammu unit and is also eligible for deduction under section 80 IB.
I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
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The ground of appeal is accordingly allowed."
8.5. In view of the above facts of the case and considering the fact that identical issue on similar facts has been decided by CIT(A) - VIII, Ahmedabad in appellant's own case for A. Y. 2008-09, and following the said decision in the year under consideration, the ground of appeal for this year is allowed."
50. In view of the above facts and circumstances and in view of judicial precedents, ground no.3 is also dismissed.
51. Now coming to additional ground taken by Revenue, we find that Hon'ble Tribunal in the case of assessee itself in AY 2008-09 vide order dated 04.03.2019 vide para 35 to 37 has already held the issue in favour of assessee. The findings of the Hon'ble Tribunal has already been reproduced in para 41 of this order.
52. Therefore, following the order of Tribunal in the case of assessee itself the additional ground taken by Revenue is dismissed.
53. In view of the above, appeal of the Revenue in ITA No.583/Ahd/2017 for AY 2011-12 is dismissed.
ITA No. 773/Ahd/2018 - A.Y. 2012-13 (Assessee's appeal)54. Now coming to assessee's appeal in ITA No.773/Ahd/2018 in AY 2012-13, we find that the only issue raised by the assessee vide ground no.1 is the action of the learned CIT(A) by which learned CIT(A) has confirmed the disallowance made by the AO and a sum of Rs.12,06,000/- being weighted deduction claimed under s.35(2AB) of the Act pertaining to contract labour and GET salary. We find that this issue has already been decided by us in favour of the assessee in ITA No.454/Ahd/2017 for AY 2011-12, therefore, the same is allowed.
55. In view of the above, asessee's appeal in ITA No.773/Ahd/2018 for AY 2012-13 is allowed.
ITA No. 895/Ahd/2018 - A.Y. 2012-13 (Revenue's appeal)56. Now we take up Revenue's appeal in ITA No.895/Ahd/2018 for AY 2012-13. I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 21 -
57. The first issue has already been decided by us against the Revenue in ITA No.583/Ahd/2017 for AY 2011-12, in which, similar ground has been dismissed by us. Therefore, following the same, we dismiss ground no.1 of appeal.
58. Coming to ground no.2 taken by the Revenue regarding treatment of excise duty refund as profit derived from business of industrial undertaking, we find that this issue has also been decided by us in the departmental appeal in ITA No.583/Ahd/2017 for AY 2011-12 where the additional ground taken by the Revenue has been dismissed by us.
59. In view of the above, Revenue's appeal in ITA No.895/Ahd/2018 for AY 2012- 13 is dismissed.
ITA No. 2603/Ahd/2017 - A.Y. 2013-14 (Revenue's appeal)60. Now coming to appeal of the Revenue in ITA No.2603/Ahd/2017 for AY 2013-
14. The two grounds of appeal are similar to ground no.1 of additional ground in ITA No.583/Ahd/2017. We have already dismissed the grounds of appeal in ITA No.583/Ahd/2017, therefore, respectfully following the same the grounds of appeal taken by Revenue in ITA No.2603/Ahd/2017 are dismissed.
C.O. No. 45/Ahd/2019 - A.Y. 2013-14
61. Now coming to CO No.45/Ahd/2019 for AY 2013-14 filed by the assessee, we find that first ground relates to the action of learned CIT(A) whereby he has confirmed the disallowance of weighted deduction of Rs.3,09,000/- claimed under s.35(2AB) of the Act. We find that learned CIT(A) while confirming the action of AO has followed his order in AY 2011-12 and has upheld the disallowance by holding as under:
"4.3 I have carefully considered the facts of the case, assessment order and submission made through statement of facts filed by the appellant. The AO has made the disallowance of the excess weighted deduction claimed by the appellant u/s.35(2AB) of the I.T. Act, 1961 amounting to Rs.3,09,000/- for the reason that the aforesaid expenditures were not approved by the DSIR in its certificate.
4.4. On going through the facts of the case, it is noted that similar issue on identical facts has been decided by this office in A. Y. 2011-12 vide appellate order dated 30/12/2016. The relevant findings given are reproduced hereunder:-
I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 22 -
5.3. Decision:
I have carefully considered the facts of the case, assessment order and submission made through statement of facts filed by the appellant. The AO has made the disallowance of the weighted deduction claimed by the appellant u/s. 35(2AB) of the . T. Act, 1961 amounting to Rs.22,32,326/- for the reason that the aforesaid expenditures were not approved by the DSIR in its certificate. These expenditures included the expenditure pertaining to contract labour, professional fee and GET salary of which details are noted in Para 5.4 of the assessment order. It has also been noticed that the appellant has claimed the aforesaid expenditures for the full year, while the DSIR has given the approval only from 31/12/2010 to 31/03/2011 i.e. only for three months. Thus, the expenditures for the first 9 months during which no approval of the DSIR was available with the appellant, the question of granting the weighted deduction does not arise.
5.4. It is worthwhile to mention that the appellant has made the claim of weighted deduction at Rs.3,59,88,290/- u/s. 35(2AB) of the Act which included the weighted deduction on account of revenue expenditure of Rs.3,24,31,968/-
and capital expenditure of Rs.35,56,322/-.
5.5. The appellant has made the written submission and relied upon certain case laws which have been reproduced in the preceding paras. The main contention of the appellant was that the AO was not correct in observing that the certificate in Form 3CL has to be required as per the provisions of sections 352AB of the I. T. Act. Also contended that Rule 6 does not require Form No. 3CL to be procured as submitted by the appellant. Thus, in absence of any enabling provisions either under the relevant sections or rules, there was no justification to make the disallowance. It was also argued that Form No. 3CL was an internal document between two government departments i.e. DSIR and Director of Income Tax [Exemptions). Thus, it was not within the control of the appellant. It was also argued that the section nowhere suggests that R & D facility is to be approved from a particular date. A plain reading clearly manifest that the assessee has to develop facility which presupposes of incurring expenditure in this behalf, application to the prescribed authority who after following proper procedure will approve the facilities or otherwise the appellant will be entitled to weighted deduction of any and all expenditure so incurred.
5.6. Having considered the facts and submission, if has been noticed that the said order of approval of in-house R S. D facility u/s. 35(2AB), the DSIR in its order has specifically mentioned as under:
"The above research and development facility is approved for the purpose of section 35(2AB) from 31/12/2010 up to 31/03/2012 subject of the conditions underlined therein."
From the terms and conditions on which order of approval has been passed by the DSIR, it is apparent that the R & D facility have only been approved for the last quarter of the year only. Since the expenditure having incurred for the first 9 months totalling to Rs.15,57,333/- no approval has been granted by the DSIR and hence, the appellant is not entitled to get the weighted deduction as per the provisions of section 35(2AB) of the Act. It has also been noticed that the case laws relied upon by the appellant are not identical on facts with the case of appellant and hence, cannot be blindly applied. Thus, the appellant was not entitled to get the weighted deduction of the R & D expenditure claimed by the appellant for which no approval has been granted by the DSIR although the I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 23 -
claim was put up by the appellant for approval before it. Obviously, the DSIR has taken a considered view in view of the framework under the scheme and found not to be approved for weighted deduction u/s. 35(2ABJ of the Act, and therefore, the AO has rightly made the disallowance of the same.
5.7. In view of the above discussion, the disallowance of the weighted deduction made by the AO is found correct and justified and hence, the same is confirmed. The ground of appeal is dismissed."
62. The issue has already been decided by us and the findings of the learned CIT(A) in this respect has already been reversed by us in our order of even date for AY 2011-12 therefore following the same, we allow ground no.1 of the CO.
63. Ground No.2 of the CO has already been held to be against the assessee as duly agreed by learned AR, therefore, ground no.3 is dismissed.
64. As regards ground nos. 1 & 2 of additional grounds taken by assessee in the cross objection, we find that such grounds has already been held to be infructuous by us in ITA No. 454/Ahd/2017, therefore following the same these additional grounds taken by assessee in CO No.45/Ahd/2019 are dismissed as infructuous.
65. In view of the above, the cross objection in CO No.45/Ahd/2019 for AY 2013- 14 is partly allowed.
ITA No. 2527/Ahd/2017 - A.Y. 2014-15 (Revenue's appeal)66. Now coming to Revenue's appeal in ITA No.2527/Ahd/2017 for AY 2014-15, we find that the only ground taken by Revenue is similar to additional ground in ITA No.583/Ahd/2017 and is also similar to Ground No.2 in ITA No.2608/Ahd/2017. Since, we have already dismissed this ground. The only ground taken by Revenue in this appeal is also dismissed.
67. In view of the above appeal in ITA No.2527/Ahd/2017 for AY 2014-15 is dismissed.
I T A N o . 4 5 4 / Ah d / 1 7 & O r s . [ J o h n s o n C o n t r o l s -
H i t a c h i Ai r C o n d i t i o n i n g I n d i a Lt d . ] - 24 -
C.O. No. 54/Ahd/2019 - A.Y. 2014-15
68. Now coming to CO No.54/Ahd/2019 for AY 2014-15 filed by the assessee, we find that the grounds taken by assessee has already been held to be infructuous, therefore following the above, the same are also held to be infructuous.
69. In view of the above, appeals filed by assessee in ITA No.454/Ahd/2017 & ITA No.773/Ahd/2018 are allowed, whereas appeals of Revenue in ITA Nos. 583/Ahd/2017, 895/Ahd/2018, 2603 & 2527/Ahd/2017 are dismissed and cross objections filed by assessee in CO No.45/Ahd/2019 is partly allowed whereas CO No.54/Ahd.2019 is dismissed as infructuous.
This Order pronounced in Open Court on 28/02/2020
Sd/- Sd/-
(RAJPAL YADAV) (T. S. KAPOOR)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad: Dated 28/02/2020
True Copy
S. K. SINHA
आदे श क त!ल"प अ#े"षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आयु,त- अपील / CIT (A)
5. 0वभागीय 3त3न*ध, आयकर अपील य अ*धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड9 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ*धकरण, अहमदाबाद ।