Income Tax Appellate Tribunal - Kolkata
Dcit, Circle - 7(1), Kolkata, Kolkata vs Britannia Industries Limited, Kolkata on 15 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA 'A' BENCH AT KOLKATA
Before
SHRI RAJESH KUMAR, ACCOUNTANT MEMBER
&
SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER
ITA No(s). 16/KOL/2026
Assessment Year(s)2016-17
DCIT, Circle-7(1), Kolkata Britannia Industries Limited
Vs.
(Appellant) (Respondent)
PAN: AABCB2066P
Appearances:
Department represented by :H. Robindra Singh, CIT (DR).
Assessee represented by :Akkal Dudhwewala, FCA.
Date of concluding the hearing : 26-March-2026
Date of pronouncing the order : 15-April-2026
ORDER
PER RAJESH KUMAR, ACCOUNTANT MEMBER:
The present appeal filed by the Revenue is directed against the order dated 27.11.2025 of the National Faceless Appeal Centre, Delhi [hereinafter referred to as 'Ld. CIT(A)'] u/s 250 of the Income Tax Act (hereinafter referred to as the 'Act') is in connection with the assessment order passed u/s 143(3) Act dated 30.12.2018 for Assessment Year 2016-17.
2. Issue raised in Ground No. 1 by the Revenue is against deletion of disallowance of Rs.7,35,49,892/- as made by the ld. AO on account of deduction claimed u/s 35(2AB) of the Act.
3. Facts in brief are that, the assessee filed return of income on 30.11.2016 showing total income of Rs. 10,62,44,65,120/-. The assessee also filed revised return of income on 27.03.2018 Page | 3 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
therefore, prior to the same, the weighted deduction u/s 35(2AB) cannot be denied due to non-availability of Form 3CL, when the assessee has furnished the approval in Form 3CM and the audit report certifying the eligible expenditure in Form 3CLA.
5. The ld. DR relied on the order of the ld. AO and submitted that, furnishing of Form 3CL was a condition precedent for availing the weighted component of deduction u/s 35(2AB) of the Act.
6. The ld. AR on the other hand supported the order of the ld. CIT(A) and submitted that Form 3CL did not have legal sanction prior to AY 2017-18 and until then, the only mandatory requirements was to furnish evidence for entering into an agreement with DSIR and obtaining approval from DSIR in Form 3CM and maintain separate accounts of the R&D facility which was to be separately audited in Form 3CLA. According to the ld. AR, Rule 6(7A)(b) was introduced on 01.07.2016 applicable from AY 2017-18 and onwards and therefore, the said Rule had no application in the relevant AY 2016-17. In support, the ld. AR placed reliance on the following decisions:
- DCIT Vs STP Ltd (125 taxmann.com 97) [ITAT Kol]
- Cummins India Ltd Vs DCIT (96 taxmann.com 576) [Pune ITAT]
- Omni Active Health Technologies Ltd Vs ACIT (117 taxmann.com 229) [ITAT Mumbai]
- ACIT v. Crompton Greaves Ltd (111 taxmann.com 338) [ITAT Mumbai] Page | 5 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
Under the amended provisions, beside maintaining separate accounts of R & D facility, copy of audited accounts have to be submitted to the prescribed authority. These amendments to rules 6 and 7a are w.e.f. 01.07.2016 i.e. under the amended rules, the prescribed authority as in part A give approval of the facility and in part B quantify the expenditure eligible for deduction under section 35(2AB) of the Act.
The issue which is raised before us relates to pre-amended provisions and question is where the facility has been approved by the prescribed authority, can the deduction be denied to the assessee under section 35(2AB) of the Act for non issue of form No.3CL by the said prescribed authority or the power is with the Assessing Officer to look into the nature of expenditure to be allowed as weighted deduction under section 35(2AB) of the Act. The first issue which arises is the recognition of facility by the prescribed authority as provided in section 35(2AB) of the Act.
.....The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted Cadila Healthcare Ltd. vs. DCIT deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below."
9. In the case of ACIT v. Crompton Greaves Ltd. (supra), the coordinate Mumbai held that since the mandate of approval of quantum of expenditure in Form 3CL had been put in place only with effect from 1-7-2016, hence, non-approval of quantum of expenditure for assessment year 2009-10 did not entitle Assessing Officer to make disallowance under section 35(2AB) of the Act. The following observations are found to be of relevance to the present case:
Page | 7 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
quantification of weighted deduction under section 35(2AB) has significance.
11. Considering the decisions (supra), the position is clear that prior to amendment introduced w.e.f. 01.07.2016, the deduction u/s 35(2AB) of the Act would be available to an assessee having an approved in-house R&D facility by the prescribed authority and there is no mention of approval of the quantum of expenditure in the law as it stood prior to that date. The mandate of quantification of expenditure has been put in place only w.e.f. 01.07.2016. In view of the above observations, we are inclined to confirm the action of the ld. CIT(A) and accordingly dismiss this ground of appeal of the Revenue.
12. Issue raised in Ground No. 2 is against the deletion of disallowance of Rs.8,66,41,250/- by the ld. CIT(A) as made by the ld. AO on account of ESOP expenditure.
13. Facts in brief are that, the assessee had issued 50,000 ESOPs carrying face value of Rs.2 /- per share at an exercise price of Rs.870.35 / share to its Managing Director. The ld. AO noted that the ESOPs were exercised on 10.06.2015 when the market price was Rs.2603.18 per share and therefore, the difference of Rs.1732.83/- x 50,000, which worked out to Rs.8,66,41,250/- was claimed by way of ESOP expenses by the assessee. It is seen that the assessee had also furnished the copy Page | 9 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
carefully perused the materials on record.
The legal issue involved in this appeal is squarely covered by the decisionof three High Courts in favour of the assessee. The first of which is in the caseof CIT v.PVP Ventures Ltd. [2012] 23 taxmann.com 286 and followed by thedecision in CIT-v.-Lemon Tree Hotels Ltd., [2019] ITA No. 107 of 2015 dated18.08.2015, High Court of Delhi which was followed in CIT LTU-v.-Biocon Ltd.,[2020] 121 taxmann.com 351(Karnataka).
In all the decisions it has been held that ESOPs was allowable as adeduction under Section 37(1) of the Act as primary object was not to wastecapital but to earn profits by securing consistent service to the employees. Thethree decisions which were relied on by the assessee were taken note of by thelearned Tribunal and the appeal filed by the revenue was dismissed. All thethree decisions which were referred above have attained finality as it appearsthat the the revenue has not preferred any appeal against those decisions. Thus wefind that Tribunal was well justified in dismissing the appeal filed by therevenue and we find no ground to interfere with the order passed by thelearned Tribunal.
Accordingly, the appeal is dismissed and substantial question of law isanswered against the revenue."
16. Therefore respectfully following the above, we see no reason to interfere with the order of the ld. CIT(A) and thus dismiss this ground of the Revenue.
17. Issue raised in Ground No. 3 relates to the deletion of disallowance by the ld. CIT(A) on account of deduction u/s 80JJAA of the Act.
18. Facts in brief are that, the assessee had claimed deduction of Rs.52,87,590/- u/s 80JJAA of the Act, in the return of income. The ld. AO had called for the details and the assessee had explained that the deduction claimed comprised of Rs.32,87,347/- and Rs.20,00,573/- in respect of the new Page | 11 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
other unit at Tamil Nadu had commenced operations only on 10.09.2015 and therefore, the new workmen employed at the unit were engaged for a period of less than 300 days and therefore, the deduction u/s 80JJAA of Rs.20,00,573/- in relation to the Tamil Nadu unit was not allowable.
21. The ld. AR vehemently supported the order of the ld. CIT(A). The ld. AR explained that, when the new unit at Tamil Nadu was in operation for only 203 days, the assessee cannot be expected to fulfil an impossible condition of employing the new workmen for more than 300 days during the year. He contended that the provisions of Section 80JJAA as enacted by the Legislature provided that, where the new factory is in operation throughout the year, and the new workmen has been engaged for more than 300 days out of 365 days, then the assessee would be entitled to deduction u/s 80JJAA of the Act. He submitted that the Legislature did not envisage a situation where the factory has been in operation for less than 300 days and therefore, according to him, the provisions of Section 80JJAA has to be purposefully interpreted to make it workable. He submitted that, if the new workmen engaged at the unit at Tamil Nadu were employed for more than 82% of the total period (300 / 365), which works out to 168 days (82% of 203 days), then the emoluments paid to such new workmen was allowable by way of deduction u/s 80JJAA of the Act. The ld. AR showed us that, out of the 275 workmen employed at Tamil Nadu unit, 90 workmen were employed for Page | 13 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
Accountant certifying deduction of Rs.32,87,347/- &Rs.20,00,573/- u/s 80JJAA of the Act in respect of the new workmen employed at the respective units at Gujarat and Tamil Nadu. It is not in dispute before us that, the new 129 workmen employed at the Gujarat unit were engaged for more than 300 days during the year and therefore, we agree with the ld. CIT(A) to the extent that, the 30% of the wages paid to these eligible workers, i.e. Rs.32,87,347/- is allowable as deduction u/s 80JJAA of the Act.
24. In so far as the new additional employees employed at the Tamil Nadu unit are concerned, we find that, none of the workmen had completed 300 days of employment during the year. The argument put forth by the ld. AR of the assessee seeking purposive interpretation of Section 80JJAA of the Act is found to be misplaced as there is no such scope laid down in the scheme of the said section. It is further seen that, similar issue had come up before the Hon'ble Karnataka High Court in the case of CIT Vs Texas Instruments India (P) Ltd (435 ITR 1) wherein it was held that requirement of being employed for a period of 300 days in a year does not mean in a financial year alone and that if any employee satisfies the requirement where his employment is spread over two years, then the assessee shall be entitled to claim deduction u/s 80JJAA of the Act in the succeeding year, when the new workmen meet the criteria of 300 Page | 15 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
labour/assessee prior to 5th June of that assessment year so as to claim the benefit of Section 80JJ-AA. Such a narrow and pedantic approach is impermissible. It also being on account of the fact that section 80JJ-AA relating to deductions under Chapter is an incentive and, therefore, has to be read liberally. In this aspect, we are also supported by the decision of the Apex Court in Mavilayi Service Co-operative Bank Ltd.'scase (supra), wherein the Apex Court has held that a benevolent provision has to be read liberally and reasonably and if there is an ambiguity in favour of the Assessee.
16.14 The Apex Court in the case Vatika Township (P.) Ltd. (supra) has also held similarly, in that if there is a benefit conferred by legislation, the said benefit being legislative's object, there would be a presumption that such a legislation would operate with retrospective effect by giving a purposive construction. Thus the clarificatory amendment of the year 2018 can also be said to apply retrospectively for the benefit of the Assessee even though the Revenue contends that there was no provision in the year 2007 permitting the Assessee to avail the benefit of deduction when the employee works for a period of 300 days in consecutive years.
16.15 In view thereof, the substantial question No. 1 is answered by holding that the software professional/engineer is a workman within the meaning of section 2(s) of ID Act, so long as such a software professional does not discharge supervisory functions, the benefit of section 80JJ-AA can be claimed by an employer/assessee even if the employee were not to complete 300 days in a particular assessment year but in the subsequent year so long as there is continuity of employment, the Assessee could continue to claim further benefit in the next two years as provided in under section 80JJ-AA of the Act.
16.16 Accordingly, we answer Question No. 1 by holding that a software engineer in a software industry is a workman within the meaning of section 2(s) of the Industrial Disputes Act so long as the Software engineer does not discharge any supervisory role.
16.17 The period of 300 days as mentioned under section 80JJAA of the Act could be taken into consideration both in the previous year and the succeeding year for the purpose of availing benefit under section 80JJAA. It is not required that the workman works for entire 300 days in the previous year."
25. In view of the above therefore, we hold that the deduction of Rs.20,00,573/- claimed by the assessee in respect of the new workmen at the Tamil Nadu Unit in the relevant AY 2016-17 was not entertainable and that the ld. AO had rightly denied the Page | 17 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
No.461/Kol/2023, we note that the facts of the assessee are identical to the facts considered in the case of AY 2018-19 and, therefore, the issue is squarely covered in favour of the assessee. The operative part of the order of the coordinate bench of the Tribunal read as under :-
"16. We have heard both the parties and perused the relevant provisions of the Act. It is noted that the provisions of Section 37 of the Act, which deals with allowability of expenses incurred in the course of and for the purposes of business, is applicable only to the extent of computation of 'Business Income' under Chapter IV-C of the Act. In our view, therefore, the Explanation (2) to Section 37 of the Act which denies deduction for the expenses incurred on CSR initiative by way of deduction from computation of 'Business Income' cannot be read into Chapter VI of the Act, which is applicable for arriving at taxable income from the Gross Total Income. It is also noted that wherever the Legislature intended that CSR contributions to any specific charitable trusts should be denied deduction, necessary provisions were incorporated in the specified sub-clauses, viz. sub-clauses (iiihk) and (iiihi). It is noted that no such debar has been set out by the Legislature in any other sub-clauses of Section 80G of the Act. As far as the reasoning given by the AO to deny the deduction is concerned, we find the same to be of no relevance as the same is not borne out from the provisions contained in Section 80G of the Act. Rather, we find the reliance placed by the Ld. AR of the appellant on the decision of this Tribunal at Kolkata in the case of JMS Mining (P.) Ltd. v. Pr. CIT in ITA No. 146/Kol/2021 dated 22 July 2021/[2021] 130 taxmann.com 118/190 ITD 702 (Kol. - Trib.) to be relevant. In the instant case also, the Tribunal after considering the provisions of Explanation (2) to Section 37 of the Act and Section 80G of the Act, observed that the Parliament intended restrictions to CSR expenditure spent by way of donations to only two funds/trusts i.e. Swachh Bharat Kosh and Clean Ganga Fund. The Tribunal thus held that, the fact that specific prohibition/restriction has been made for CSR contributions only to two eligible charitable organizations, then it automatically implies that there is no prohibition/restriction in respect of claim of CSR expenses, in any other cases, which are otherwise eligible under section 80G of the Act. Following the same, this Tribunal in the case of Acme Chem Ltd. v. DCIT in ITA No. 650/Kol/2022 dated 31-3-2023 has deleted similar disallowance made by the AO u/s 80G of the Act in relation to the CSR donations made to registered charitable trusts, by observing as follows :-
"60. We fail to find any merit in this action of ld. AO which has been subsequently confirmed by ld. CIT(A) for the reason that CSR expenses incurred Page | 19 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
29. Respectfully following the same, we hold that the ld. CIT(A) had rightly deleted the disallowance and had rightly granted the relief to the assessee. Accordingly, this ground of the Revenue is dismissed.
30. Issue raised in Ground No. 5 by the Revenue relates to the deletion of disallowance of Rs.1,10,09,127/- by the ld. CIT(A) on account of Section 14A / Rule 8D made by the ld. AO.
31. Facts in brief are that, the assessee had earned exempt income of Rs.53,67,005/- from its investments, towards which, it had computed and disallowed an amount of Rs.6,58,054/- by way of expenditure relating to earning of the exempt income u/s 14A of the Act. It is seen that the ld. AO had called upon the assessee to explain the basis of the disallowance offered u/s 14A of the Act, which was furnished by the assessee. The ld. AO simply observed that, the assessee did not correctly take into account in its computation the expenditure to be disallowed in relation to its investments under Section 14A read with Rule 8D and therefore invoked the same and computed further disallowance of Rs.1,10,09,127/-.
32. In the appellate proceedings, the ld. CIT(A) held that the AO had invoked Rule 8D mechanically without recording objective satisfaction regarding the incorrectness of the assessee's computation, which was a statutory condition precedent u/s Page | 21 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
Rs.6,58,054/-. He accordingly argued that, even on merits, no further disallowance was warranted u/s 14A of the Act.
35. After hearing the rival contentions and perusing the material placed before us, we find that the undisputed facts are that the assessee has investments as on 31st March 2015 and 31st march 2016 in the balance sheet which included the investments which yielded the exempt income as well as the investments which did not yield any exempt income during the year. We note that the assessee has made before the ld. CIT(A) without prejudice submission that, if the legal plea of the assessee is not accepted that the AO had not recorded objective satisfaction before invoking Rule 8D, and even if the provisions of Section 14A read with Rule 8D is invoked even then the disallowance works out to Rs.3,68,750/-, which is lower than the amount suo moto disallowed in the return of income.
36. It is seen that the own funds of the assesseewas to the tune of Rs.1700.16 croresas compared to investments of only Rs.317.40 crores as at the end of the year. As such, it can be safely presumed that the assessee was having sufficient own funds to invest in shares. And since the assessee was having a common fund consisting of both own funds and borrowed funds and in case the own funds are sufficient to invest in non- business activities, a presumption drawn is that the said investment is made out of own funds. For this proposition of law, Page | 23 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
deleted while disallowance of indir4ect expenses of Rs.1,82,346/- by application of Rule 8D()(iii) upheld with the direction to allow relief of the sum already disallowed by the appellant itself. On appeal preferred by the Revenue the Tribunal held as followed:-
'We have heard rival submissions and gone through facts and circumstances of the case. We find that now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query Ld. Sr. DR could not controvert that the assessee has made in investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at Rs.365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT(A) on the common issue.... ...' We find that this case has yielded concurrent findings of facts regarding expenditure incurred y the assessee for the purpose of earning the exempt income, by the Appellate Authority and the Tribunal. As such there is no scope for interference with such concurrent findings of facts. We, therefore, are not satisfied that the case involves any substantial question of law. The application and appeal are thus dismissed."
6. In the light of above decision of the jurisdictional High Court which squarely applies to the appellant's facts, no disallowance of Rs.144,25,599/- out of interest paid was called for and accordingly the same is directed to be deleted.
7. Mr. Srihari vehement argument regarding this issue is that the Assessing Officer had rightly made the impugned disallowance as per prescribed formula under Rule 8D(2)(ii) and (iii) of the IT Rules, 1962. There can hardly be any dispute about the basic principle that sec. 14A r.w.s. Rule 8D of the IT Rules comes into play in case of assessee deriving exempt income without disallowing corresponding expenditure in its books of account. The dispute herein is that of proportionate interest and administrative expenditure. We find from the CIT(A)'s above extracted discussion that assessee had successfully proved its non interest bearing funds to be much more than investments as per the relevant compilation in preceding paragraph. The Revenue fails to dispute all these clinching figure(s) during the course of hearing...."
37. Coming to Rule 8D(2)(iii), we are of the opinion that the disallowance had to be worked out based upon the average value of investments which yielded exempt income during the year, as Page | 25 ITA No(s). 16/KOL/2026 Assessment Year(s)2016-17 Britannia Industries Limited.
retrospective effect from 01.04.2005. We accordingly direct that, the education cess would not be allowed as an expenditure under section 37 read with 40(a)(ii) of the Income-tax Act, 1961. In support, we rely on the decision of the Hon'ble Supreme Court in the case of JCIT Vs Chambal Fertilizers & Chemicals Ltd (450 ITR
164) and thus allow this ground of the Revenue.
41. In the result, the appeal of the Revenue is partly allowed.
Order pronounced in the open Court on 15 thApril, 2026.
Sd/- Sd/-
[Pradip Kumar Choubey] [Rajesh Kumar]
Judicial Member Accountant Member
Dated: 15.04.2026
Copy of the order forwarded to:
1. DCIT, Circle-7(1), Kolkata.
2. Britannia Industries Limited, 5/1A, Hunger Ford Street, Shakespeare Sarani, Kolkata, West Bengal, 700017.
3. CIT(A)-NFAC, Delhi.
4. CIT-
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File.
//True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata