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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-7, Pune dated 25-01-2017 for the assessment year 2012-13.
2 ITA No. 850/PUN/2017, A.Y. 2012-13
The assessee in appeal has assailed the order of Commissioner of Income Tax (Appeals) by raising following grounds/additional grounds : “1. The learned AO erred in law and on facts in making and learned CIT(A), Pune erred in law and on facts in sustaining the disallowance of weighted deduction of Rs.1,21,03,988 claimed u/s 35(2AB) of the ITA, 1961 (200% of actual expenditure of Rs.60,51,944); though the appellant's R & D unit was accorded sanction by DSIR from 01/04/2006. The learned CIT(A) ought to have appreciated that once an R & D facility is approved in principle, the mere formality of not getting the final renewal certification in Form 3CM does not affect the eligibility as to weighted deduction u/s 35(2AB) of the ITA, 1961. 2. Without prejudice to ground no. 1 above, the learned CIT(A) erred in law and on facts in not granting deduction of Rs.60,51,944 u/s 35(1)(i) being 100% of revenue expenses incurred on the in-house R & D unit relating to Electronics activity. The learned CIT(A) failed to appreciate that recognition by DSIR and their approval is not a pre- requisite for claiming the deduction of 100% of the expenditure u/s 35(1)(i) of the ITA, 1961 or as a normal revenue expenditure u/s 37 of ITA, 1961. 3. The learned AO erred in law and on facts in making and the learned CIT(A) erred in law and on facts in confirming the disallowance u/s 14A r.w.r. 8D amounting to Rs.7,97,298/-. The learned CIT(A) failed to appreciate the submissions of the appellant stating that it had not claimed the dividend received amounting to Rs. 34,093/- as exempt from tax. The learned CIT(A) ought to have appreciated that disallowance u/s 14A is envisaged only when some exempt income is present in the relevant year. 4. Without prejudice to ground no. 3 above, the learned CIT(A) erred in law and on facts in confirming the disallowance of Rs.6,84,089/- (Part of overall 14A disallowance amounting to Rs.7,97,298/-) pertaining to expenditure on exempt dividend income, u/s 14A of ITA, 1961 r.w.r. 8D ii) of the IT Rules, 1962. The learned AO ought to have appreciated that the appellant has sufficient own funds for making the investments which can generate exempt income.
The appellant craves leave to add / delete / amend / modify all / any of the grounds.
Additional Ground “The learned IT authorities erred in law and on facts in not restricting the disallowance u/s. 14A r.w.r. 8D to the amount of exempt income earned amounting to Rs.34,093/-.”
3 ITA No. 850/PUN/2017, A.Y. 2012-13
Shri Kishor Phadke appearing on behalf of the assessee submitted that the ground Nos. 1 and 2 relating to assessee’s eligibility for weighted deduction u/s. 35(2AB) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was considered by the Tribunal in assessee’s own case for assessment year 2010-11. The Tribunal after considering the facts held that the assessee is eligible to claim deduction u/s. 35(2AB) of the Act.
3.1 The ld. AR submitted that the ground Nos. 3 and 4 and additional ground of appeal are in respect of disallowance u/s. 14A r.w. Rule 8D. The ld. AR submitted that the assessee is not pressing ground Nos. 3 and 4 of the appeal. The limited prayer of assessee in additional ground is to restrict the disallowance u/s. 14A r.w. Rule 8D to the amount of exempt income earned during the period relevant to the assessment year under appeal. The ld. AR submitted that undisputedly the assessee during the period has earned exempt income of Rs.34,093/-. The Assessing Officer has made disallowance of Rs.7,97,298/-. The ld. AR in support of his contentions placed reliance on the decision of Hon’ble Supreme Court of India in the case of Pr. Commissioner of Income Tax Vs. State Bank of India reported as 99 taxmann.com 286.
On the other hand Shri Vishwas Mundhe representing the Department vehemently defendant the impugned order. The ld. DR submitted that during the period relevant to the assessment year under appeal the assessee was not having approval from DSIR in Form 3CM necessary for claiming weighted deduction. In the absence of approval from competent authority, the assessee is not eligible for weighted deduction under the provisions of section 35(2AB) of the Act.
4 ITA No. 850/PUN/2017, A.Y. 2012-13
We have heard the submissions made by representative of rival sides and have perused the orders of authorities below. The ground Nos. 1 and 2 of the appeal is in respect of denial of weighted deduction claimed by the assessee u/s. 35(2AB) of the Act. Undisputedly, the assessee was enjoying the benefit of deduction u/s. 35(2AB) up to 31-03-2009. The assessee applied for renewal of recognition of in-house R&D unit to DSIR. The recognition to R&D facilities of the assessee were extended up to 31-03-2012. The DSIR issued certificate dated 24-06-2009 valid up to 31-03-2012. The assessee thereafter made application in the prescribed Form 3CK for issuance of Form 3CM. However, the same was denied by the DSIR. The authorities below rejected assessee’s claim of weighted deduction u/s. 35(2AB) in the absence of statutory Form 3CK from DSIR.
We find that under similar circumstances assessee’s claim of deduction u/s. 35(2AB) was denied by the lower authorities in assessment year 2010-11. The assessee carried the matter in appeal before the Tribunal in ITA No. 690/PUN/2015 for assessment year 2010-11. The Co- ordinate Bench vide order dated 09-04-2018 after examining the facts of the case and considering various decisions on the issue held as under : “30. The issue which arises is whether the assessee can be denied deduction under section 35(2AB) of the Act for non receipt of form No.3CM. The assessee admittedly, had received recognition in the initial period and thereafter, it is case of renewal of recognition of in-house R&D facility, which was also granted by the prescribed authority for the period ending 31.03.2012 and also for the period ending 31.03.2015. The correspondence between the assessee and DSIR for the third phase reflects a reminder being sent by DSIR to renew the recognition of in-house R&D facility beyond 31.03.2012. In other words, DSIR had not derecognized the facility for the years 2009-12. The recognition to the facility has been granted from start till date and has not been withdrawn. In other words, recognition given by the prescribed authority which is mandate of section 35(2AB) of the Act is maintained and once the recognition is so maintained, the assessee has to be accorded deduction under section 35(2AB) of the Act. The non receipt of form No.3CM for the intervening three years is at best a procedural lapse and is not fatal for denial of claim of deduction under section 35(2AB) of the
5 ITA No. 850/PUN/2017, A.Y. 2012-13
Act. Accordingly, we hold so. The prescribed authority in any case under the pre-amended provisions had no authority to look into the nature and quantum of expenditure except in the first year to see investment in land and building. After recognition of facility and approval by DSIR, the Assessing Officer is to allow the claim of assessee after verifying the same. Thus, we direct the Assessing Officer to allow deduction claimed under section 35(2AB) of the Act to the facility for the year under appeal. The ground of appeal No.1 raised by the assessee is thus, allowed.”
In the assessment year under appeal there has been no change in the facts. The assessment year under appeal is prior to amendment of section 35(2AB) and relevant Rules by the Finance Act, 2015. Hence, the amended provisions are not attracted. For the reasons stated in the aforesaid order of Co-ordinate Bench, we hold that the assessee is eligible to claim deduction u/s. 35(2AB) for the impugned assessment year, as well. Accordingly, ground Nos. 1 and 2 of the appeal are allowed.
The assessee in ground Nos. 3 and 4 of the appeal has assailed disallowance of deduction u/s. 14A r.w. Rule 8D. The ld. AR has stated at the Bar that he is not pressing ground Nos. 3 and 4 of the appeal. In alternate, the assessee has raised additional ground with limited prayer to restrict disallowance u/s. 14A r.w. Rule 8D to the extent of exempt income earned during the relevant period. The assessee has earned dividend income of Rs.34,093/- during the period relevant to the assessment year under appeal. The assessee has not made any suo-moto disallowance for earning exempt income. Against the said exempt income the Assessing Officer made disallowance of Rs.7,97,298/-. The Hon’ble Supreme Court of India in the case of Pr. Commissioner of Income Tax Vs. State Bank of India (supra) has held that the disallowance u/s. 14A r.w. Rule 8D cannot exceed exempt income earned by the assessee. Thus, in view of the above decision, we direct the Assessing Officer to restrict the disallowance u/s.
6 ITA No. 850/PUN/2017, A.Y. 2012-13
14A to exempt income earned by the assessee during the relevant period i.e. Rs.34,093/-. The ground Nos. 3 and 4 of the appeal are dismissed and the additional ground of appeal is allowed.
In the result, the appeal of assessee is partly allowed in the terms aforesaid.
Order pronounced on Friday, the 12th day of July, 2019.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 12th July, 2019 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-7, Pune 3. 4. The Pr. Commissioner of Income Tax-6, Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune