BOMBAY MINERALS LIMITED,KHAMBHALIYA vs. DCIT, CENTRAL CIRCLE 3(3), MUMBAI

2. Whether on the facts and circumstances of the case and in law, n the facts and circumstances of the case and in law, n the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of notional interest the Ld. CIT(A) erred in deleting the disallowance of notional interest the Ld. CIT(A) erred in deleting the disallowance of notional interest under section 36(1)(iii) of the Act by placing reliance upon the under section 36(1)(iii) of the Act by placing reliance upon the under section 36(1)(iii) of the Act by placing reliance upon the Bombay Minerals Ltd. 5409 & 5410/MUM/2025 judgement of the Hon'ble Bombay High Court in the case of CIT vs. judgement of the Hon'ble Bombay High Court in the case of CIT vs. judgement of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. without appreciating that the facts are Reliance Utilities & Power Ltd. without appreciating that the facts are Reliance Utilities & Power Ltd. without appreciating that the facts are distinguishable as in the instant case, there is no clear segregation of distinguishable as in the instant case, there is no clear segregation of distinguishable as in the instant case, there is no clear segregation of funds and the assessee has not maintained separate accounts funds and the assessee has not maintained separate accounts funds and the assessee has not maintained separate accounts delineating the flow of interest delineating the flow of interest-free and interest-bearing funds. bearing funds. Therefore, in the absence of a direct nexus and proper fund flow Therefore, in the absence of a direct nexus and proper fund flow Therefore, in the absence of a direct nexus and proper fund flow analysis, the presumption applied by the Ld. CIT(A) is speculative analysis, the presumption applied by the Ld. CIT(A) is speculative analysis, the presumption applied by the Ld. CIT(A) is speculative and not supported by contemporaneous documentation or accounting and not supported by contemporaneous documentation or accounting and not supported by contemporaneous documentation or accounting records.

3. Whether on the facts and circums 3. Whether on the facts and circumstances of the case and in law, tances of the case and in law, the Ld. CIT(A) erred in restricting the claim of deduction in respect of the Ld. CIT(A) erred in restricting the claim of deduction in respect of the Ld. CIT(A) erred in restricting the claim of deduction in respect of payment made to M/s. Ashapura Minchem Ltd. to purchase scientific payment made to M/s. Ashapura Minchem Ltd. to purchase scientific payment made to M/s. Ashapura Minchem Ltd. to purchase scientific reports amounting to Rs. 3,50,00,000/ reports amounting to Rs. 3,50,00,000/- made by the AO to Rs. made by the AO to Rs. 1,50,00,000/ 1,50,00,000/- and effectively allowing the deduction u/s 35(1)(i) of vely allowing the deduction u/s 35(1)(i) of the Act to assessee without considering the fact that the said section the Act to assessee without considering the fact that the said section the Act to assessee without considering the fact that the said section allows for deduction in respect of salary paid to employees or in allows for deduction in respect of salary paid to employees or in allows for deduction in respect of salary paid to employees or in respect of any cost of material purchased used in the scientific respect of any cost of material purchased used in the scientific respect of any cost of material purchased used in the scientific research, which is clearly not the matter in the case of the assessee which is clearly not the matter in the case of the assessee which is clearly not the matter in the case of the assessee and also the fact that the assessee's contention regarding the and also the fact that the assessee's contention regarding the and also the fact that the assessee's contention regarding the applicability of Section 35(2AB) of the Act is also not correct as the applicability of Section 35(2AB) of the Act is also not correct as the applicability of Section 35(2AB) of the Act is also not correct as the aforesaid Section allows deduction to a company in respect of aforesaid Section allows deduction to a company in respect of aforesaid Section allows deduction to a company in respect of any expenditure on scientific research on in expenditure on scientific research on in-house research and house research and development facility approved by the prescribed authority, whereas development facility approved by the prescribed authority, whereas development facility approved by the prescribed authority, whereas in the instant case, the assessee has not done any expenditure on in the instant case, the assessee has not done any expenditure on in the instant case, the assessee has not done any expenditure on.

, if need be. any of the ground of appeal, if need be.

3. Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its original return of income for the year under consideration on original return of income for the year under consideration on original return of income for the year under consideration on 14.10.2016 declaring total income at Rs.72,11,01,080/- which was 14.10.2016 declaring total income at Rs.72,11,01,080/ 14.10.2016 declaring total income at Rs.72,11,01,080/ revised on 28.11.2015 declaring total income at Rs.72,94,66,950/-. revised on 28.11.2015 declaring total income at Rs.72,94,66,950 revised on 28.11.2015 declaring total income at Rs.72,94,66,950 The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny and statutory notices were issued and complied with. In the and statutory notices were issued and complied with. In the and statutory notices were issued and complied with. In the Bombay Minerals Ltd.

5409 & 5410/MUM/2025 assessment completed u/s 143(3) of the Act on 31.12.2018, the assessment completed u/s 143(3) of the Act on 31.12.2018, the assessment completed u/s 143(3) of the Act on 31.12.2018, the Assessing Officer made additions (i) disallowance of interest claimed Assessing Officer made additions (i) disallowance of interest Assessing Officer made additions (i) disallowance of interest u/s 36(1)(iii) amounting to Rs.43,86,610/ u/s 36(1)(iii) amounting to Rs.43,86,610/-; (ii) disallowance of ; (ii) disallowance of research and development expenses claimed u/s 35(1)(ii) of the Act research and development expenses claimed u/s 35(1)(ii) of the Act research and development expenses claimed u/s 35(1)(ii) of the Act amounting to Rs.35,00,00,000/ amounting to Rs.35,00,00,000/- ; (iii) disallowance of delayed ; (iii) disallowance of delayed payment of the employee payment of the employee’s contribution to provident provident fund amounting to Rs.6,49,073/ amounting to Rs.6,49,073/- ; (iv) prior period expenses amounting ; (iv) prior period expenses amounting to Rs.46,08,954/- and (vi) disallowance u/s 14A of the Act and (vi) disallowance u/s 14A of the Act and (vi) disallowance u/s 14A of the Act amounting to Rs.1,55,05,320/ amounting to Rs.1,55,05,320/- etc.

4. On further appeal, the Ld. CIT(A) partly allowed the appeal of On further appeal, the Ld. CIT(A) partly allowed the appeal of On further appeal, the Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved the assessee. Aggrieved, both the assessee and the Revenue are in both the assessee and the Revenue are in appeal before the Tribunal raising the grounds as reproduced appeal before the Tribunal raising the grounds as reproduced appeal before the Tribunal raising the grounds as reproduced above.

5. The ground No. 1 of the appeal of the assessee and ground No. The ground No. 1 of the appeal of the assessee and ground No. The ground No. 1 of the appeal of the assessee and ground No. 4 of the appeal of the Revenue are inter connected and are in 4 of the appeal of the Revenue are inter connected and are in 4 of the appeal of the Revenue are inter connected and are in relation to disallowance u/s 14A r.w.r. 8D of the Income owance u/s 14A r.w.r. 8D of the Income owance u/s 14A r.w.r. 8D of the Income-tax Rules, 1962 (in short ‘the Rules’). 1962 (in short ‘the Rules’).

5.1 Brief facts qua the issue in dispute are that Brief facts qua the issue in dispute are that Brief facts qua the issue in dispute are that the Assessee reported exempt income of ₹53,83,764/- but offered no reported exempt income of but offered no suo motu disallowance, contending that its strategic invest disallowance, contending that its strategic investments in 'Orient ments in 'Orient Abrasives Ltd.' were funded entirely by its own interest-free capital Abrasives Ltd.' were funded entirely by its own interest Abrasives Ltd.' were funded entirely by its own interest and reserves (amounting to ₹116.86 Crores). The Assessing Officer and reserves (amounting to 116.86 Crores). The Assessing Officer (AO) rejected this "strategic investment" plea, citing the Hon’ble (AO) rejected this "strategic investment" plea, citing the Hon’ble (AO) rejected this "strategic investment" plea, citing the Hon’ble 5409 & 5410/MUM/2025 Supreme Court’s ruling in Maxopp Investment Ltd. v. CIT estment Ltd. v. CIT, and Supreme Court’s ruling in applied Rule 8D to disallow ₹1,08,53,323/- applied Rule 8D to disallow (Interest) and ₹46,51,891/- (Administrative Expenses). (Administrative Expenses). According to the Assessing According to the Assessing Officer, the assessee had maintained consolidated accounts, Officer, the assessee had maintained consolidated accounts, Officer, the assessee had maintained consolidated accounts, precluding the possibility of establishing one precluding the possibility of establishing one-to-one nexus between one nexus between expenses and exempt income yielding investments. The Assessing expenses and exempt income yielding investments. The Assessing expenses and exempt income yielding investments. The Assessing Officer noticed that assessee had not maintained separate accounts Officer noticed that assessee had not maintained separate accounts Officer noticed that assessee had not maintained separate accounts for exempt income yielding investment and for business activities. for exempt income yielding investment and for business activities. for exempt income yielding investment and for business activities. The contention of the assessee that i The contention of the assessee that investment were strategic in nvestment were strategic in nature and therefore, no disallowance was called for, was rejected nature and therefore, no disallowance was called for, was rejected nature and therefore, no disallowance was called for, was rejected by the Assessing Officer relying on the decision of the Hon’ble by the Assessing Officer relying on the decision of the Hon’ble by the Assessing Officer relying on the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (Civil Supreme Court in the case of Maxopp Investment Ltd. Supreme Court in the case of Maxopp Investment Ltd. Appeal No. 104-109 of 2016), wh 109 of 2016), wherein Hon’ble Supreme Court held erein Hon’ble Supreme Court held that dominant purpose for which the investment was into shares, is that dominant purpose for which the investment was into shares, is that dominant purpose for which the investment was into shares, is not relevant while making disallowance u/s 14A of the Act. not relevant while making disallowance u/s 14A of the Act. not relevant while making disallowance u/s 14A of the Act. According to the Assessing Officer, the dividend earned on shares According to the Assessing Officer, the dividend earned on shares According to the Assessing Officer, the dividend earned on shares was held by the assessee by the assessee company as non-taxable, t taxable, therefore, it would trigger the applicability of section 14A of the Act. would trigger the applicability of section 14A of the Act. would trigger the applicability of section 14A of the Act. Consequently expenditure which is attributable to the dividend Consequently expenditure which is attributable to the dividend Consequently expenditure which is attributable to the dividend income must be disallowed. The Assessing Officer after recording income must be disallowed. The Assessing Officer after recording income must be disallowed. The Assessing Officer after recording dissatisfaction to the claim of dissatisfaction to the claim of the assessee invoked Rule 8D of the assessee invoked Rule 8D of Income-tax Rules and made disallowance for indirect interest tax Rules and made disallowance for indirect interest tax Rules and made disallowance for indirect interest expenses in proportion of investment ses in proportion of investment, which was computed at was computed at Rs.1,08,53,323/- under Rules 8D(2)(ii) of Rules under Rules 8D(2)(ii) of Rules. The Assessing . The Assessing Officer also made disallowance under Ru Officer also made disallowance under Rule 8D(2)(iii) le 8D(2)(iii) at the rate of Bombay Minerals Ltd.

5409 & 5410/MUM/2025 0.5% of the average investment which 0.5% of the average investment which was computed to Rs.46,51,891/-.

5.2 On further appeal before Ld. CIT(A), it was claimed that On further appeal before Ld. CIT(A), it was claimed that On further appeal before Ld. CIT(A), it was claimed that expenses so computed in relation to exempt income, exceeds the expenses so computed in relation to exempt income expenses so computed in relation to exempt income quantum of exempt income earned. quantum of exempt income earned. The Ld. CIT(A) accordingly The Ld. CIT(A) accordingly examined the computation of the Rule 8D carried out by the examined the computation of the Rule 8D carried out by the examined the computation of the Rule 8D carried out by the Assessing Officer and held that assessee was having sufficient own Assessing Officer and held that assessee was having sufficient own Assessing Officer and held that assessee was having sufficient own funds for investment in exempted income earning shares and funds for investment in exempted income earning shares and funds for investment in exempted income earning shares and therefore, no disallowance for interest on p therefore, no disallowance for interest on proportionate basis was roportionate basis was called for. The Ld. called for. The Ld. CIT(A) relied on the decision of the Hon’ble relied on the decision of the Hon’ble Bombay High Court in the case of HDFC Bank Ltd. 366 ITR 505 Bombay High Court in the case of HDFC Bank Ltd. 366 ITR 505 Bombay High Court in the case of HDFC Bank Ltd. 366 ITR 505 and CIT v. Reliance U and CIT v. Reliance Utilities and Power Ltd. 313 ITR 340 and ilities and Power Ltd. 313 ITR 340 and accordingly accordingly deleted deleted the the disallowance disallowance for for indirect indire interest expenditure.

5.3 But in respect of administrative expenses, the Ld. CIT(A) But in respect of administrative expenses, the Ld. CIT(A) But in respect of administrative expenses, the Ld. CIT(A) sustained the disallowance sustained the disallowance at the rate of 0.5% of the average 0.5% of the average investment. Following Following the decision of the Special Bench in Vireet the decision of the Special Bench in Vireet Investment Ltd. reported in reported in 165 ITD 27 , the ld CIT(A) , the ld CIT(A) directed the Assessing Officer to restrict the Assessing Officer to restrict the average of investment investments which had actually yielded exempt income during the relevant year. The Ld. actually yielded exempt income during the relevant year. The Ld. actually yielded exempt income during the relevant year. The Ld. CIT(A) noted that addition of Rs.46,51,891/ CIT(A) noted that addition of Rs.46,51,891/- was less than amount was less than amount of exempted income earned and of exempted income earned and accordingly he restricted the accordingly he restricted the disallowance to Rs.4 46,51,891/-. The relevant finding of the Ld. . The relevant finding of the Ld. CIT(A) is reproduced as under: CIT(A) is reproduced as under: 5409 & 5410/MUM/2025

“11.5.8 The legal principle that the amendment to Section 14A cannot 11.5.8 The legal principle that the amendment to Section 14A cannot 11.5.8 The legal principle that the amendment to Section 14A cannot be given retrospective effect has been followed be several be given retrospective effect has been followed be several be given retrospective effect has been followed be several other subsequent decisions of Mumbai ITAT. Respectfully following the subsequent decisions of Mumbai ITAT. Respectfully following the subsequent decisions of Mumbai ITAT. Respectfully following the same it is held that the amendment to Section 14A cannot be applied same it is held that the amendment to Section 14A cannot be applied same it is held that the amendment to Section 14A cannot be applied to the instant assessment year. Therefore, the ground of the to the instant assessment year. Therefore, the ground of the to the instant assessment year. Therefore, the ground of the appellant that the amount of disallowance cannot exceed t appellant that the amount of disallowance cannot exceed t appellant that the amount of disallowance cannot exceed the exempt income is allowed. income is allowed. 11.5.9 Coming to the computation of disallowance in terms of Rule 11.5.9 Coming to the computation of disallowance in terms of Rule 11.5.9 Coming to the computation of disallowance in terms of Rule 8D, it is seen that the AO has computed an amount of Rs. 8D, it is seen that the AO has computed an amount of Rs. 8D, it is seen that the AO has computed an amount of Rs. 1,08,53,323/ 1,08,53,323/- U/r Rule 8D(2)(ii) on account of interest expense U/r Rule 8D(2)(ii) on account of interest expense attributable to the investment and Rs.46 attributable to the investment and Rs.46,51,891/- U/r 8D(2)(iii) on U/r 8D(2)(iii) on account of the average value of investments that have yielded exempt account of the average value of investments that have yielded exempt account of the average value of investments that have yielded exempt income. As for Rule 8D(2)(ii) is concerned, the jurisdictional Bombay income. As for Rule 8D(2)(ii) is concerned, the jurisdictional Bombay income. As for Rule 8D(2)(ii) is concerned, the jurisdictional Bombay High Court, in HDFC Bank Ltd. (366 ITR 505) and CIT v. Reliance High Court, in HDFC Bank Ltd. (366 ITR 505) and CIT v. Reliance High Court, in HDFC Bank Ltd. (366 ITR 505) and CIT v. Reliance Utilities & Power Ltd. (3 Utilities & Power Ltd. (313 ITR 340), has ruled that no disallowance 13 ITR 340), has ruled that no disallowance under Rule 8D(2)(ii) is warranted if the assessee's surplus funds under Rule 8D(2)(ii) is warranted if the assessee's surplus funds under Rule 8D(2)(ii) is warranted if the assessee's surplus funds exceed the investments in shares. Additionally, the ITAT, in several exceed the investments in shares. Additionally, the ITAT, in several exceed the investments in shares. Additionally, the ITAT, in several such as Welspun Corp Ltd., Welspun Steel Ltd., Welspun India Ltd., such as Welspun Corp Ltd., Welspun Steel Ltd., Welspun India Ltd., such as Welspun Corp Ltd., Welspun Steel Ltd., Welspun India Ltd., AYM Syntex Ltd., has consistently held that disallowance under Rule Ltd., has consistently held that disallowance under Rule Ltd., has consistently held that disallowance under Rule 8D(2)(ii) is unwarranted when investments are made from surplus 8D(2)(ii) is unwarranted when investments are made from surplus 8D(2)(ii) is unwarranted when investments are made from surplus funds. In the instant year the appellant has made an investment of funds. In the instant year the appellant has made an investment of funds. In the instant year the appellant has made an investment of Rs.74.74 Crores in the shares of M/s Orient Abrasives Limited while Rs.74.74 Crores in the shares of M/s Orient Abrasives Limited while Rs.74.74 Crores in the shares of M/s Orient Abrasives Limited while its share capital and free reserves are to the tune of Rs. 116.86 its share capital and free reserves are to the tune of Rs. 116.86 its share capital and free reserves are to the tune of Rs. 116.86 Crores. Therefore, respectfully following the decisions as cited above, Crores. Therefore, respectfully following the decisions as cited above, Crores. Therefore, respectfully following the decisions as cited above, it is held that no disallowance can be done U/r 8D(2)(ii) since the it is held that no disallowance can be done U/r 8D(2)(ii) since the it is held that no disallowance can be done U/r 8D(2)(ii) since the surplus fund of the appellant exceeds the investm surplus fund of the appellant exceeds the investment. The addition of ent. The addition of Rs. 1,08,53,323/ Rs. 1,08,53,323/-is therefore deleted. 11.5.10 With respect to Rule 8D(2)(iii) providing for calculation of 11.5.10 With respect to Rule 8D(2)(iii) providing for calculation of 11.5.10 With respect to Rule 8D(2)(iii) providing for calculation of expenses @ 0.5% of the average investments, the ITAT Special Bench expenses @ 0.5% of the average investments, the ITAT Special Bench expenses @ 0.5% of the average investments, the ITAT Special Bench in Vireet Investments Pvt. Ltd. (165 ITD 27) has clarified t in Vireet Investments Pvt. Ltd. (165 ITD 27) has clarified t in Vireet Investments Pvt. Ltd. (165 ITD 27) has clarified that only those investments that have actually yielded exempt income during those investments that have actually yielded exempt income during those investments that have actually yielded exempt income during the relevant financial year should be included in the computation. the relevant financial year should be included in the computation. the relevant financial year should be included in the computation. The Mumbai Tribunal in the case of Raoul Thackersey V DCIT 165 The Mumbai Tribunal in the case of Raoul Thackersey V DCIT 165 The Mumbai Tribunal in the case of Raoul Thackersey V DCIT 165 taxmann.com 692 and Reliance Power Ltd. v DCIT 159 taxmann.com 692 and Reliance Power Ltd. v DCIT 159 taxmann.com 692 and Reliance Power Ltd. v DCIT 159 taxmann.com 1626, also held that for the purpose of making the disallowance of 1626, also held that for the purpose of making the disallowance of 1626, also held that for the purpose of making the disallowance of expenses under section 14A as per rule 8D only those investments expenses under section 14A as per rule 8D only those investments expenses under section 14A as per rule 8D only those investments are to be considered for computing average value of investments are to be considered for computing average value of investments are to be considered for computing average value of investments which yielded exempt income during the year. Sin which yielded exempt income during the year. Sin which yielded exempt income during the year. Since the sole investment of the appellant is in M/s Orient Abrasives Limited that investment of the appellant is in M/s Orient Abrasives Limited that investment of the appellant is in M/s Orient Abrasives Limited that from which the appellant has earned exempt income, the computation from which the appellant has earned exempt income, the computation from which the appellant has earned exempt income, the computation done by the AO is in line with the above decisions. The addition of done by the AO is in line with the above decisions. The addition of done by the AO is in line with the above decisions. The addition of Rs.46,51,891/ Rs.46,51,891/- done by the AO U/r 8D(2)(iii) being less than the ii) being less than the exempt income is therefore confirmed. This ground of appeal of the exempt income is therefore confirmed. This ground of appeal of the exempt income is therefore confirmed. This ground of appeal of the appellant is partly allowed. appellant is partly allowed.”

5409 & 5410/MUM/2025 5.4 We have heard rival submission of parties and perused the We have heard rival submission of parties and perused the We have heard rival submission of parties and perused the relevant material on record. relevant material on record. Before us, the Revenue is aggrieved Before us, the Revenue is aggrieved with the deletion of addition deletion of addition of Rs.1,08,53,323/ Rs.1,08,53,323/-, whereas the assessee is aggrieved with the sustaining of the addition of assessee is aggrieved with the sustaining of the addition of assessee is aggrieved with the sustaining of the addition of Rs.46,51,891/-. The Ld. CIT(A) deleted the interest disallowance The Ld. CIT(A) deleted the interest disallowance The Ld. CIT(A) deleted the interest disallowance made made under under Rule Rule 8D(2)(ii)]by 8D(2)(ii)] by invoking invoking the the "Principle "Principle of of Presumption" established by the Jurisdictional High Court in lished by the Jurisdictional High Court in lished by the Jurisdictional High Court in CIT v. Reliance Utilities & Power Ltd. Reliance Utilities & Power Ltd. (supra) and HDFC Bank Ltd. HDFC Bank Ltd. (supra). The law is well (supra). The law is well-settled. Where an Assessee possesses a settled. Where an Assessee possesses a mixed fund" comprising both interest mixed fund" comprising both interest-bearing and interest bearing and interest-free funds, and the interest est-free funds (Capital + Reserves) are sufficient free funds (Capital + Reserves) are sufficient to cover the impugned investments, a presumption arises that the to cover the impugned investments, a presumption arises that the to cover the impugned investments, a presumption arises that the investments were made out of interest investments were made out of interest-free funds. Since the free funds. Since the Assessee’s reserves (₹116.86 Crores) comfortably exceed the Assessee’s reserves ( 116.86 Crores) comfortably exceed the investment (₹74.74 Crores), we find no infirmity in the Ld. CIT(A)’s 74.74 Crores), we find no infirmity in the Ld. CIT(A)’s 74.74 Crores), we find no infirmity in the Ld. CIT(A)’s deletion of the interest disallowance. deletion of the interest disallowance. Accordingly, the ground Accordingly, the ground no. 4 of appeal of the Revenue is dismissed of appeal of the Revenue is dismissed.

5.5 As far as the disallowance of administrative expenses the disallowance of administrative expenses the disallowance of administrative expenses under rule 8D(2)(iii) is concerne is concerned, the Ld. CIT(A) has already relied on the the Ld. CIT(A) has already relied on the decision of the Special Bench of Vireet Investment Pvt. Ltd. (supra) decision of the Special Bench of Vireet Investment Pvt. Ltd. (supra) decision of the Special Bench of Vireet Investment Pvt. Ltd. (supra) and therefore, we do not find any infirmity in the order of the Ld. and therefore, we do not find any infirmity in the order of the Ld. and therefore, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute in relation to disallowance under CIT(A) on the issue in dispute in relation to disallowance und CIT(A) on the issue in dispute in relation to disallowance und Rule 8D(2)(iii) of the Rules. The ground (iii) of the Rules. The ground no. 1 of appeal of the of appeal of the assessee is also accordingly dismissed. assessee is also accordingly dismissed. 5409 & 5410/MUM/2025

“7.3.1 I have duly considered the contentions of the AO and the 7.3.1 I have duly considered the contentions of the AO and the 7.3.1 I have duly considered the contentions of the AO and the submissions made b submissions made by the appellant. As is evident from the y the appellant. As is evident from the submissions placed on record that the interest free advances given submissions placed on record that the interest free advances given submissions placed on record that the interest free advances given by the appellant to PCL originated in the FY 2000 by the appellant to PCL originated in the FY 2000-01 and it was from 01 and it was from FY 2007-08 that PCL came to owe money to the appellant. As far as 08 that PCL came to owe money to the appellant. As far as 08 that PCL came to owe money to the appellant. As far as the assessment the assessment year under consideration is concerned there was no year under consideration is concerned there was no fresh loan advanced, much to the contrary there was a repayment of fresh loan advanced, much to the contrary there was a repayment of fresh loan advanced, much to the contrary there was a repayment of loan by PCL amounting to Rs. 6,04,335/ loan by PCL amounting to Rs. 6,04,335/-. The appellant also . The appellant also submitted a comprehensive breakup of the total interest expense of submitted a comprehensive breakup of the total interest expense of submitted a comprehensive breakup of the total interest expense of Rs.4,74,86,713/ ,713/- claimed by it in its P&L a/c according to which only claimed by it in its P&L a/c according to which only interest amounting to Rs.2.38 Crores pertained to general loans interest amounting to Rs.2.38 Crores pertained to general loans interest amounting to Rs.2.38 Crores pertained to general loans whereas of the balance interest, an interest of Rs.1.09 crores whereas of the balance interest, an interest of Rs.1.09 crores whereas of the balance interest, an interest of Rs.1.09 crores pertained to interest paid on income tax which was already pertained to interest paid on income tax which was already pertained to interest paid on income tax which was already disallowed by the appellant and the balance interest pertained to by the appellant and the balance interest pertained to by the appellant and the balance interest pertained to Bombay Minerals Ltd.

5409 & 5410/MUM/2025 loans taken for specific purposes being acquisition of vehicle for loans taken for specific purposes being acquisition of vehicle for loans taken for specific purposes being acquisition of vehicle for which no question of any diversion would arise. which no question of any diversion would arise. 7.3.2 The appellant also submitted that it had interest free balances 7.3.2 The appellant also submitted that it had interest free balances 7.3.2 The appellant also submitted that it had interest free balances in the form of in the form of Share Capital and Reserves as at 31.3.2016 which Share Capital and Reserves as at 31.3.2016 which stood at Rs.116.86 Crores. The appellant also placed on record stood at Rs.116.86 Crores. The appellant also placed on record stood at Rs.116.86 Crores. The appellant also placed on record balances of Share Capital and Reserves from FY 2000 balances of Share Capital and Reserves from FY 2000 balances of Share Capital and Reserves from FY 2000-01 to FY 2015-16 and submitted that the said interest free balances at no 16 and submitted that the said interest free balances at no 16 and submitted that the said interest free balances at no point in time were point in time were lower than the interest free advances given to PCL. lower than the interest free advances given to PCL. The Hon. Bombay High Court in CIT Vs. Reliance Utilities & Power The Hon. Bombay High Court in CIT Vs. Reliance Utilities & Power The Hon. Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd. (313 ITR 340) when dealing with a similar question allowed the Ltd. (313 ITR 340) when dealing with a similar question allowed the Ltd. (313 ITR 340) when dealing with a similar question allowed the appeal in favour of the assessee and at para 10 held as under: appeal in favour of the assessee and at para 10 held as under: appeal in favour of the assessee and at para 10 held as under: "10. If there be interest there be interest-free funds available to an assessee sufficient free funds available to an assessee sufficient to meet its investments and at the same time the assessee had to meet its investments and at the same time the assessee had to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the raised a loan it can be presumed that the investments were from the raised a loan it can be presumed that the investments were from the interest-free funds available. In our opinion the Supreme Co free funds available. In our opinion the Supreme Court in free funds available. In our opinion the Supreme Co East India Pharmaceutical Works Ltd. (supra) had the occasion to East India Pharmaceutical Works Ltd. (supra) had the occasion to East India Pharmaceutical Works Ltd. (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of consider the decision of the Calcutta High Court in Woolcombers of consider the decision of the Calcutta High Court in Woolcombers of India Ltd. (supra) where a similar issue had arisen. Before the India Ltd. (supra) where a similar issue had arisen. Before the India Ltd. (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been Supreme Court it was argued that it should have been Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of in essence and true character the taxes were paid out of the profits of in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running the relevant year and not out of the overdraft account for the running the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was of the business and in these circumstances the appellant was of the business and in these circumstances the appellant was entitled to claim the deductions. The entitled to claim the deductions. The Supreme Court noted that the Supreme Court noted that the argument had considerable force, but considering the fact that the argument had considerable force, but considering the fact that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be contention had not been advanced earlier it did not require to be contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcomber's case (supra) the answered. It then noted that in Woolcomber's case (supra) the answered. It then noted that in Woolcomber's case (supra) the Calcutta High Court had come to Calcutta High Court had come to the conclusion that the profits were the conclusion that the profits were sufficient to meet the advance tax liability and the profits were sufficient to meet the advance tax liability and the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case deposited in the overdraft account of the assessee and in such a case deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of it should be presumed that the taxes were paid out of the profits of it should be presumed that the taxes were paid out of the profits of the year and n the year and not out of the overdraft account for the running of the ot out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient business. It noted that to raise the presumption, there was sufficient business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High material and the assessee had urged the contention before the High material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds Court. The principle therefore would be that if there are funds Court. The principle therefore would be that if there are funds available both interest available both interest-free and overdraft and/or loans taken, then a free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the presumption would arise that investments would be out of the presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the free fund generated or available with the company, if the free fund generated or available with the company, if the interest-free funds were sufficient to meet the investmen free funds were sufficient to meet the investments. In this free funds were sufficient to meet the investmen case this presumption is established considering the finding of fact case this presumption is established considering the finding of fact case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal." both by the CIT(A) and Tribunal." 7.3.3 Respectfully following the decision of the Hon'ble Bombay High 7.3.3 Respectfully following the decision of the Hon'ble Bombay High 7.3.3 Respectfully following the decision of the Hon'ble Bombay High Court, it is held that since the surplus fund of the appellant was in Court, it is held that since the surplus fund of the appellant was in Court, it is held that since the surplus fund of the appellant was in excess of the investment made, the assumption has to be there that cess of the investment made, the assumption has to be there that cess of the investment made, the assumption has to be there that the investment was made out of the surplus fund. Ground No. 2 of the investment was made out of the surplus fund. Ground No. 2 of the investment was made out of the surplus fund. Ground No. 2 of Bombay Minerals Ltd.

5409 & 5410/MUM/2025 the appeal is therefore allowed in favour of the appellant and the AO the appeal is therefore allowed in favour of the appellant and the AO the appeal is therefore allowed in favour of the appellant and the AO is directed to delete the disallowance of notional inter is directed to delete the disallowance of notional interest u/s 36(1)(iii) est u/s 36(1)(iii) amounting to Rs. 43,86,610/ amounting to Rs. 43,86,610/-.” 6.1 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record. the relevant materials on record. The Revenue challenges the The Revenue challenges the deletion of a ₹43,86,610/ 43,86,610/- disallowance concerning interest disallowance concerning interest-free advances made to M/s advances made to M/s Prashansha Ceramic Ltd. The Revenue’s Prashansha Ceramic Ltd. The Revenue’s grievance is centered on the absence of a "one grievance is centered on the absence of a "one-to-one nexus" or a one nexus" or a "direct fund flow analysis." "direct fund flow analysis." The Revenue’s insistence on a "direct The Revenue’s insistence on a "direct nexus" ignores the established judicial presumption regarding nexus" ignores the established judicial presumption regarding nexus" ignores the established judicial presumption regarding surplus funds. The Ld. The Ld. CIT(A) found that (i) the advances originated CIT(A) found that (i) the advances originated in earlier years; (ii) No fresh advance was given during the year; (iii) in earlier years; (ii) No fresh advance was given during the year; (iii) in earlier years; (ii) No fresh advance was given during the year; (iii) There was repayment during the year. There was repayment during the year. The Ld. CIT(A) has recorded The Ld. CIT(A) has recorded a categorical finding of fact that the Assessee’s interest-free funds a categorical finding of fact that the Assessee’s interest a categorical finding of fact that the Assessee’s interest were consistently higher than the advances given. As per the ratio re consistently higher than the advances given. As per the ratio re consistently higher than the advances given. As per the ratio in Reliance Utilities (supra) Reliance Utilities (supra), once the availability of sufficient , once the availability of sufficient interest-free funds is established, the Revenue cannot surmise that free funds is established, the Revenue cannot surmise that free funds is established, the Revenue cannot surmise that interest-bearing borrowings were diverted. bearing borrowings were diverted. Since the Ld. Since the Ld. CIT(A) has followed the decision of the Hon’ble Jurisdictional High Court while followed the decision of the Hon’ble Jurisdictional High Court while followed the decision of the Hon’ble Jurisdictional High Court while deleting the addition, we do not find any infirmity in the order of the deleting the addition, we do not find any infirmity in the order of the deleting the addition, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute. Ld. CIT(A) on the issue in dispute. Consequently, the deletion of the Consequently, the deletion of the notional interest disallowance is notional interest disallowance is upheld. The ground Nos. 1 and 2 The ground Nos. 1 and 2 of the appeal of the Revenue are accordingly dismissed. of the appeal of the Revenue are accordingly dismissed. of the appeal of the Revenue are accordingly dismissed.

Ground No 3 :: Ground No 3 :: 1. That the Hon'ble CIT (A) 51, Mumbai has grievously erred in 1. That the Hon'ble CIT (A) 51, Mumbai has grievously erred in 1. That the Hon'ble CIT (A) 51, Mumbai has grievously erred in allowing the claim of Rs 2,00,00,000 paid allowing the claim of Rs 2,00,00,000 paid by the appellant to the by the appellant to the Innovation & Knowledge Centre of Ashapura Minechem u/s 35(1)(i) Innovation & Knowledge Centre of Ashapura Minechem u/s 35(1)(i) Innovation & Knowledge Centre of Ashapura Minechem u/s 35(1)(i) instead of u/s 37(1) of the Act. instead of u/s 37(1) of the Act. 7.1.1 Since the additional ground raised by the assessee being Since the additional ground raised by the assessee being Since the additional ground raised by the assessee being purely legal in nature and not requiring investigation of fresh facts , purely legal in nature and not requiring investigation of fresh facts purely legal in nature and not requiring investigation of fresh facts same is admitted for adjudication following the decision of the same is admitted for adjudication following the decision of the same is admitted for adjudication following the decision of the Hon’ble Supreme Court in the case of National Thermal Power Hon’ble Supreme Court in the case of National Thermal Power Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. reported in reported in 229 ITR 383 (SC).

7.2 The facts in brief qua the issue in dispute are that before the The facts in brief qua the issue in dispute are that before the The facts in brief qua the issue in dispute are that before the Assessing Officer the assessee claimed average weighted deduction he assessee claimed average weighted deduction he assessee claimed average weighted deduction of Rs.3,50,00,000/- u/s 35(1)(ii) of the Act at the rate of u/s 35(1)(ii) of the Act at the rate of 175% in respect respect respect of of of research and research and research and development expenses development development expenses debited of expenses debited of debited of Rs.2,00,00,000/- . I . It was claimed by the assessee that it had t was claimed by the assessee that it had contributed Rs.2,00,00, contributed Rs.2,00,00,000/- to M/s Ashapura Minec Ashapura Minechem Ltd. who were having in use research and development centre approved by research and development centre approved by research and development centre approved by DSIR and valid up to 31.03.2016 DSIR and valid up to 31.03.2016, which was further renewed to which was further renewed to Bombay Minerals Ltd. 5409 & 5410/MUM/2025 31.03.2019. The Assessing Officer however noticed that said 31.03.2019. The Assessing Officer however noticed that said 31.03.2019. The Assessing Officer however noticed that said Ashapura Minechem Ltd. Ashapura Minechem Ltd. had not fulfilled the conditions prescribed the conditions prescribed u/s 35(1)(ii) of the Act. The assess u/s 35(1)(ii) of the Act. The assessee failed to substantiate eligi ee failed to substantiate eligibility of M/s Ashapura Minechem Ltd. under the provisions of section of M/s Ashapura Minechem Ltd. under the provisions of section of M/s Ashapura Minechem Ltd. under the provisions of section 35(1)(ii) of the Act. Accordingly, the Assessing Officer rejected the 35(1)(ii) of the Act. Accordingly, the Assessing Officer rejected the 35(1)(ii) of the Act. Accordingly, the Assessing Officer rejected the claim of the assessee ssessee observing as under:

“The submission of the assessee has been carefully considered and The submission of the assessee has been carefully considered and The submission of the assessee has been carefully considered and the same is not acceptable as assessee has not produced any the same is not acceptable as assessee has not produced any the same is not acceptable as assessee has not produced any evidence substantiating that Ashapura Mincechem Ltd. fulfilled all evidence substantiating that Ashapura Mincechem Ltd. fulfilled all evidence substantiating that Ashapura Mincechem Ltd. fulfilled all the conditions prescribed under se the conditions prescribed under section 35(1)(ii) of Income Tax Act. ction 35(1)(ii) of Income Tax Act. Further, section 35(1)(iia)of the Income Tax Act, clearly states that Further, section 35(1)(iia)of the Income Tax Act, clearly states that Further, section 35(1)(iia)of the Income Tax Act, clearly states that any sum paid to a company must be used by it for scientific research: any sum paid to a company must be used by it for scientific research: any sum paid to a company must be used by it for scientific research: Provided that such company_ Provided that such company_ 1. Is registered in India 1. Is registered in India 2. Has as its main object t 2. Has as its main object to scientific research and development. o scientific research and development.

3. Fulfils such other conditions as maybe prescribed in Rule 5F.

3. Fulfils such other conditions as maybe prescribed in Rule 5F.

The books of accounts of Ashapura Minechem Limited states that The books of accounts of Ashapura Minechem Limited states that The books of accounts of Ashapura Minechem Limited states that main business activity is mineral exploration, mining and trading etc. main business activity is mineral exploration, mining and trading etc. main business activity is mineral exploration, mining and trading etc. It is to be noted that the assessee has admitted vide submission It is to be noted that the assessee has admitted vide submission It is to be noted that the assessee has admitted vide submission dated 19.11.2018 that as research and development activity is 9.11.2018 that as research and development activity is 9.11.2018 that as research and development activity is incidental or ancillary to the attainment of the main object. incidental or ancillary to the attainment of the main object. incidental or ancillary to the attainment of the main object. Therefore, Therefore, Therefore, assessee assessee assessee claim claim claim towards towards towards scientific scientific scientific research research research & & & developement Rs.3,50,00,000/ developement Rs.3,50,00,000/- cannot be allowed as Ashapura cannot be allowed as Ashapura Minechem Ltd. not fulfi Minechem Ltd. not fulfilled the provisions stated in Section 35(1)(iia)of lled the provisions stated in Section 35(1)(iia)of the Income Tax Act. the Income Tax Act. Moreover in the same provision of Section 35(1)(iia) of the Income Tax Moreover in the same provision of Section 35(1)(iia) of the Income Tax Moreover in the same provision of Section 35(1)(iia) of the Income Tax Act clearly states that assessee company should fulfils such other Act clearly states that assessee company should fulfils such other Act clearly states that assessee company should fulfils such other conditions as prescribed in Rule 5F. conditions as prescribed in Rule 5F. However assessee has not filed any statement before the assessee has not filed any statement before the assessee has not filed any statement before the Commissioner of Income Tax in terms of the said rule which contains Commissioner of Income Tax in terms of the said rule which contains Commissioner of Income Tax in terms of the said rule which contains- a. A detailed note on the research work undertaken by it during the a. A detailed note on the research work undertaken by it during the a. A detailed note on the research work undertaken by it during the previous year; previous year; 1. A summary of research articles published in national 1. A summary of research articles published in national 1. A summary of research articles published in national or international journals during the year; international journals during the year; 2. Any patents or other similar rights applied for or registered during 2. Any patents or other similar rights applied for or registered during 2. Any patents or other similar rights applied for or registered during the year; 3. Any patents or other similar rights applied for or registered during 3. Any patents or other similar rights applied for or registered during 3. Any patents or other similar rights applied for or registered during the year; 4. Programme of research projects to be undertake 4. Programme of research projects to be undertake 4. Programme of research projects to be undertaken during the forthcoming year and the financial allocation for such subjects. forthcoming year and the financial allocation for such subjects. forthcoming year and the financial allocation for such subjects. Further, the assessee has also not furnished the requisite details and Further, the assessee has also not furnished the requisite details and Further, the assessee has also not furnished the requisite details and documentary evidences for the allowability of said claim. The documentary evidences for the allowability of said claim. The documentary evidences for the allowability of said claim. The assessee has not been able to substantiate th assessee has not been able to substantiate the same with requisite e same with requisite documentary evidences and also the nexus of claim of said expenses documentary evidences and also the nexus of claim of said expenses documentary evidences and also the nexus of claim of said expenses vis- à-vis the business activities carried out by the assessee and also vis the business activities carried out by the assessee and also vis the business activities carried out by the assessee and also no certificate and other details filed in support of the claims. no certificate and other details filed in support of the claims. no certificate and other details filed in support of the claims. Accordingly, the said Research Accordingly, the said Research and Development expenditure and Development expenditure claimed by the assessee is hereby disallowed. claimed by the assessee is hereby disallowed.” 7.3 On further appeal before the Ld. CIT(A), the assessee claimed On further appeal before the Ld. CIT(A), the assessee claimed On further appeal before the Ld. CIT(A), the assessee claimed that expenses was for obtaining a report from said company. In that expenses was for obtaining a report from said company. In that expenses was for obtaining a report from said company. In view of such statement, the Ld. CIT(A) disallowed the weighted view of such statement, the Ld. CIT(A) disallowed t view of such statement, the Ld. CIT(A) disallowed t 5409 & 5410/MUM/2025 claim of deduction and restricted the expenses debited of claim of deduction and restricted the expenses debited of claim of deduction and restricted the expenses debited of Rs.2,00,00,000/- instead of weighed instead of weighed deduction u/s 35(1)(ii) of the u/s 35(1)(ii) of the Act claimed by the assessee claimed by the assessee.

7.4 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on the relevant materials on record. The Ld. CIT(A) has examined the . The Ld. CIT(A) has examined the claim of the assessee in the light of the reports placed on record. claim of the assessee in the light of the reports placed on record. claim of the assessee in the light of the reports placed on record. Since the reports were were relevant to the line of the business of the relevant to the line of the business of the assessee expenses has been allowed but inadvertently same has assessee expenses has been allowed but inadvertently same has assessee expenses has been allowed but inadvertently same has been allowed u/s 35(1)(i) of the Act whereas same should have been (1)(i) of the Act whereas same should have been (1)(i) of the Act whereas same should have been allowed u/s 37 of the Act as incurred wholly and exclusively for the allowed u/s 37 of the Act as incurred wholly and exclusively for the allowed u/s 37 of the Act as incurred wholly and exclusively for the purpose of the business. The relevant finding of the Ld. CIT(A) is purpose of the business. The relevant finding of the Ld. CIT(A) is purpose of the business. The relevant finding of the Ld. CIT(A) is reproduced as under: reproduced as under:

“8.3.1 The facts of case have been considered. The 8.3.1 The facts of case have been considered. The issue involved in issue involved in the instant ground of appeal pertains to the claim of the appellant of the instant ground of appeal pertains to the claim of the appellant of the instant ground of appeal pertains to the claim of the appellant of weighed deduction on account of contribution towards scientific weighed deduction on account of contribution towards scientific weighed deduction on account of contribution towards scientific research U/s 35(1)(ii) amounting to Rs.3,50,00,000/ research U/s 35(1)(ii) amounting to Rs.3,50,00,000/-. The facts of the . The facts of the case are that the appellant has case are that the appellant has made a payment of Rs.2,00,00,000/ made a payment of Rs.2,00,00,000/- during the relevant assessment year towards obtaining two research during the relevant assessment year towards obtaining two research during the relevant assessment year towards obtaining two research reports from the Innovation and Knowledge Centre of Ashapura reports from the Innovation and Knowledge Centre of Ashapura reports from the Innovation and Knowledge Centre of Ashapura Minechem Limited, first being report on Calcined Bauxite for Minechem Limited, first being report on Calcined Bauxite for Minechem Limited, first being report on Calcined Bauxite for Refractory and Abrasive Applicat Refractory and Abrasive Application for which Rs. 50,00,000/ ion for which Rs. 50,00,000/- has been paid and second being report on Beneficiation of Low been paid and second being report on Beneficiation of Low been paid and second being report on Beneficiation of Low-Grade Bauxite for which Rs. 1,50,00,000/ Bauxite for which Rs. 1,50,00,000/- has been paid. The research has been paid. The research centre is approved by the Department of Scientific and Industrial centre is approved by the Department of Scientific and Industrial centre is approved by the Department of Scientific and Industrial Research (DSIR) under Sectio Research (DSIR) under Section 35(2AB) of the Act. In its return of n 35(2AB) of the Act. In its return of income, the appellant claimed a weighted deduction of Rs. income, the appellant claimed a weighted deduction of Rs. income, the appellant claimed a weighted deduction of Rs. 3,50,00,000/ 3,50,00,000/- under Section 35(1)(ii) of the Act, being 1.75 times the under Section 35(1)(ii) of the Act, being 1.75 times the amount paid. The AO however disputed the claim of weighted amount paid. The AO however disputed the claim of weighted amount paid. The AO however disputed the claim of weighted deduction on the ground that deduction on the ground that the appellant has not produced any the appellant has not produced any evidence to suggest that Ashapura Minechem Ltd to whom this evidence to suggest that Ashapura Minechem Ltd to whom this evidence to suggest that Ashapura Minechem Ltd to whom this payment has been made fulfils all the condition laid down in Section payment has been made fulfils all the condition laid down in Section payment has been made fulfils all the condition laid down in Section 35(1)(ii) of the Act, under which weighted deduction can be claimed. 35(1)(ii) of the Act, under which weighted deduction can be claimed. 35(1)(ii) of the Act, under which weighted deduction can be claimed. The AO has however disa The AO has however disallowed the entire claim of the appellant llowed the entire claim of the appellant including the payment of Rs.2,00,00,000/ including the payment of Rs.2,00,00,000/-. 5409 & 5410/MUM/2025

8.3.2 Upon perusal of the approval of the approval of DSIR vide Form 8.3.2 Upon perusal of the approval of the approval of DSIR vide Form 8.3.2 Upon perusal of the approval of the approval of DSIR vide Form No 3CM dated 6.11.2013 and valid upto 31.03.2016 further renewed No 3CM dated 6.11.2013 and valid upto 31.03.2016 further renewed No 3CM dated 6.11.2013 and valid upto 31.03.2016 further renewed upto 31.03.2019 it is seen that the ap upto 31.03.2019 it is seen that the approval granted to the research proval granted to the research institution was under Section 35(2AB) and not under Section 35(1)(ii) institution was under Section 35(2AB) and not under Section 35(1)(ii) institution was under Section 35(2AB) and not under Section 35(1)(ii) and accordingly the appellant is not entitled to claim weighted and accordingly the appellant is not entitled to claim weighted and accordingly the appellant is not entitled to claim weighted deduction on the expense. The appellant has revised its claim during deduction on the expense. The appellant has revised its claim during deduction on the expense. The appellant has revised its claim during the course of appellat the course of appellate proceedings and requested to allow the e proceedings and requested to allow the excess claim of Rs. 1,50,00,000/ excess claim of Rs. 1,50,00,000/-. 8.3.3 It is undisputed that the appellant incurred an expenditure of 8.3.3 It is undisputed that the appellant incurred an expenditure of 8.3.3 It is undisputed that the appellant incurred an expenditure of Rs. 2,00,00,000/ Rs. 2,00,00,000/- towards research reports directly relevant to its towards research reports directly relevant to its line of business, and that proper invoices line of business, and that proper invoices and copies of the reports and copies of the reports have been submitted. The Innovation and Knowledge Centre of have been submitted. The Innovation and Knowledge Centre of have been submitted. The Innovation and Knowledge Centre of Ashapura Minechem Ltd. is a recognized institution under Section Ashapura Minechem Ltd. is a recognized institution under Section Ashapura Minechem Ltd. is a recognized institution under Section 35(2AB) of the Act. However, the weighted deduction under Section 35(2AB) of the Act. However, the weighted deduction under Section 35(2AB) of the Act. However, the weighted deduction under Section 35(1)(ii) is not applicable in the abse 35(1)(ii) is not applicable in the absence of specific approval under nce of specific approval under that provision. Since the fact of the appellant having made the that provision. Since the fact of the appellant having made the that provision. Since the fact of the appellant having made the payment to the Research Institute is not in dispute and the status of payment to the Research Institute is not in dispute and the status of payment to the Research Institute is not in dispute and the status of the research institute with respect to approval from DSIR is also not the research institute with respect to approval from DSIR is also not the research institute with respect to approval from DSIR is also not in dispute, the AO wa in dispute, the AO was not correct in disallowing even the payment of s not correct in disallowing even the payment of Rs.2,00,00,000/ Rs.2,00,00,000/- made to the institute. The appellant is entitled to made to the institute. The appellant is entitled to deduction of the payment to Rs.2,00,00,000/ deduction of the payment to Rs.2,00,00,000/- U/s 35(1)(i) as against U/s 35(1)(i) as against the weighted claim of Rs.3,50,00,000/ the weighted claim of Rs.3,50,00,000/- made by it. Thus, the made by it. Thus, the addition of Rs.3,50,00,000/ of Rs.3,50,00,000/- done by the AO is restricted to Rs. done by the AO is restricted to Rs. 1,50,00,000/ 1,50,00,000/- and the balance addition of Rs.2,00,00,000/ and the balance addition of Rs.2,00,00,000/- is allowed. This ground of appeal is partly allowed. allowed. This ground of appeal is partly allowed.” 7.5.1 It is undisputed that the Assessee received specialized It is undisputed that the Assessee received specialized It is undisputed that the Assessee received specialized technical reports relevant to its business. While the Assessee may technical reports relevant to its business. While the Assessee may technical reports relevant to its business. While the Assessee may have failed to satisfy the technical requirements for "weighted have failed to satisfy the technical requirements for "weighted have failed to satisfy the technical requirements for "weighted deduction" under Section 35, the reality of the expenditure and its deduction" under Section 35, the reality of the expenditure and its deduction" under Section 35, the reality of the expenditure and its commercial nexus with the Assessee's business are beyond ommercial nexus with the Assessee's business are beyond ommercial nexus with the Assessee's business are beyond reproach. The Ld. CIT(A) correctly identified that while the reproach. The Ld. CIT(A) correctly identified that while the reproach. The Ld. CIT(A) correctly identified that while the "weighted" portion is not allowable, the core expenditure of ₹2.00 "weighted" portion is not allowable, the core expenditure of "weighted" portion is not allowable, the core expenditure of Crores represents an "outgo" incurred wholly and exclusively for Crores represents an "outgo" incurred wholly and exclusively for Crores represents an "outgo" incurred wholly and exclusively for business purposes. Although the Ld. CIT(A) mistakenly cited s purposes. Although the Ld. CIT(A) mistakenly cited s purposes. Although the Ld. CIT(A) mistakenly cited Section 35(1)(i), the expenditure is squarely covered under Section Section 35(1)(i), the expenditure is squarely covered under Section 35(1)(i), the expenditure is squarely covered under 37(1). We refine the order to allow the deduction under Section . We refine the order to allow the deduction under Section . We refine the order to allow the deduction under Section Bombay Minerals Ltd.

5409 & 5410/MUM/2025 37(1). The ground of appeal of the Revenue is accordingly The ground of appeal of the Revenue is accordingly The ground of appeal of the Revenue is accordingly dismissed whereas the additional ground of the appeal of the ereas the additional ground of the appeal of the ereas the additional ground of the appeal of the assessee is allowed.