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Facts
Two cross-appeals were filed by the assessee and the Revenue against the order dated 28.12.2017. The appeals pertained to the assessment year 2009-10 and involved several grounds raised by both parties.
Held
The Tribunal adjudicated multiple grounds raised by both the Revenue and the assessee. Several grounds were dismissed as infructuous or for lack of merit, including those related to revised Form 3ECB, depreciation on buildings, exchange gain on FCNN, and depreciation on UPS and diesel generators. Some grounds were allowed, while others were partly allowed or remanded.
Key Issues
The appeals dealt with various issues including depreciation on assets, exchange gains, corporate guarantees, R&D expenditure, export commission, and book profit computation under Section 115JB.
Sections Cited
92B, 14A, 8D, 35(2AB), 40(a)(i), 195, 115JB
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Before: Shri S.S. Viswanethra Ravi & Shri Jagadish
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
Both the cross appeals filed by the assessee and the Revenue are directed against the order dated 28.12.2017 passed by the ld. Commissioner of Income Tax (Appeals) 5, Chennai for the assessment year 2009-10.
Ground No. 1 is general in nature and requires no adjudication.
Ground No. 2 raised by the Revenue in challenging the action of the ld. CIT(A) in not considering revised Form 3ECB.
The ld. AR Shri R. Vijayaraghavan, Advocate submits that no discussion was made by the ld. CIT(A), as such the ground is not arising out of the order of the ld. CIT(A) and prayed to dismiss the same as infructuous. The ld. DR Shri AR V Sreenivasan, CIT did not dispute the same and accordingly, ground raised by the Revenue is dismissed as infructuous.
Ground No. 3 raised by the Revenue in challenging the action of the ld. CIT(A) in deviating from his judgement in assessee’s own case for AY 2006-07 as regards the rate of depreciation on buildings.
Having heard both the parties, we note that the Assessing Officer discussed the said issue in para 10 of the assessment order. On perusal of the same, it is noted that against 10% of depreciation claimed on all the buildings including residential building, the Assessing Officer, by following the order of the ld. CIT(A) for AY 2004-05, held that the assessee is entitled for depreciation on residential building @ 5% only. Having aggrieved by the same, the assessee preferred an appeal before the ld. CIT(A). We note that before the ld. CIT(A) it was contended that the ITAT, Chennai Benches held the issue in favour of the assessee and allowed depreciation @ 10%. The ld. CIT(A) discussed the issue in para 9.4 of the impugned order and by following the order of the ITAT, the depreciation @ 10% was allowed to the assessee vide para 9.4 of the impugned order. Before us, the ld. AR placed on record the decision dated 17.07.2019 passed by the Hon’ble Jurisdictional High Court in assessee’s own case for AY 2000-01 and submits that the issued issue is decided in favour of the assessee and prayed to follow the same. On careful reading of the same, we note that the Hon’ble High Court was pleased to admit the substantial question of law “i. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is entitled to 10% depreciation on residential flats used for its employees?” Further, the Hon’ble High Court was pleased to hold the said substantial question of law against the Revenue vide para 12 of the said decision, which is reproduced herein below:
We have gone through the reasons assigned by the Tribunal and we find that the Tribunal rightly held that there was no such restriction in the Circular issued by the Board stating that the benefit would accrue to the assessee only if the residential accommodation is situated within the factory premises. Furthermore, the said Circular does not restrict the benefit only if the accommodation is provided to all the employees, which, obviously, is a business expediency and it is not for the Assessing Officer to sit in the arm chair of the assessee to decide as what would be best for their employees. Thus, the first substantial question of law is required to be answered against the Revenue and it is accordingly answered against the Revenue. 8. In view of the ratio laid down by the Hon’ble High Court, we find no infirmity in the order of the ld. CIT(A) in allowing the claim of depreciation @ 10% and it is justified. Thus, the ground No. 3 raised by the Revenue is dismissed.
Ground No. 4 raised by the Revenue in challenging the action of the ld. CIT(A) in relying on the Hon’ble Apex Court’s ruling in the case of M/s. Woodward Governor India Ltd. which facts are distinguishable from that of the assessee’s as regards the exchange gain on FCNN.
Having heard both the parties, at the outset, we note that the Assessing Officer discussed the said issue in para 14 of the assessment order. We find that the assessee claimed exchange gain by way of FCCN and treated the same under the head of capital expenditure by stating that the FCCN has been made for the purpose of purchasing of capital assets and relied on the decision of the Hon’ble High Court of Madras in the case of EID Parry Ltd. v. CIT 174 ITR 11 (Mad), CIT v. Universal Radiators 120 ITR 906 (Mad) & CIT v. Woodward Governor India P Ltd. 312 ITR 254 (SC). We find that the Assessing Officer held the said decisions are not acceptable and treated the above said exchange gain as revenue income and added to the total income of the assessee. Being aggrieved, the assessee preferred an appeal before the ld. CIT(A). We find the ld. CIT(A) discussed the said issue in para 13 of the impugned order and by placing reliance in the order of the ITAT Chennai in assessee’s own case for AYs 2005-06, 2006-07 & 2007-08 decided the issue in favour of the assessee vide para 13.4 page 75 of the impugned order.
The ld. AR placed on record order dated 23.09.2016 passed by this Tribunal in assessee’s own case in 2826 & 2827/ Mds/2014 for AYs 2005-06, 2006-07 & 2007-08. On perusal of the same, we note that the Tribunal held the income from exchange fluctuation on FCCN as capital receipt vide para 9.3 of the said order. We find no contrary view in this regard. Therefore, we find no infirmity in the order of the ld. CIT(A) in holding that the exchange fluctuation of FCCN is capital receipt, not chargeable to taxation. Thus, ground No. 4 raised by the Revenue is dismissed.
12. Ground No. 5 raised by the Revenue in challenging the action of the ld. CIT(A) in allowing the depreciation at 60% on UPS holding it as part of computer as against 15% allowed by the Assessing Officer holding it as part of electrical appliances.
After hearing both the parties and at the outset, we note that the Assessing Officer discussed the said issue in para 15(b) of the assessment order. We note that the assessee claimed depreciation @ 80% on the UPS system. The Assessing Officer restricted the same at 15% vide para 15.11 at page 20 of the assessment order. The ld. CIT(A) discussed the same in para 15.1 to 15.5 at pages 77 to 79 of the impugned order. We find that the ld. CIT(A), placing reliance in assessee’s own case for AY 2005-06, 2006-07 and 2007-08, allowed depreciation @ 60% and accordingly directed the Assessing Officer to give effect to para 15.4 and 15.5 of the impugned order.
The ld. AR referred to para 47 at page 70 of the Tribunal order. On perusal of the said order, we note that the Tribunal, by placing order for AY 2006-07 in dated 16.02.2016, allowed the claim of depreciation on UPS @ 60%. We do not find any contrary view in this regard and accordingly, we find no infirmity in the order of the ld. CIT(A) in holding that the assessee is entitled to depreciation on UPS at 60% by relying on the order of this Tribunal in assessee’s own case referred above and it is justified. Therefore, the ground No. 5 raised by the Revenue is dismissed.
The Revenue filed an additional ground in challenging the action of the ld. CIT(A) in deleting the addition on account of Corporate Guarantee Commission provided by the assessee by holding that the same is not covered under clause (c) in Explanation 1 to section 92B of the Act.
After hearing both the parties and at the outset, we note that the Assessing Officer discussed the said issue in para 2 to 6 of the assessment order. We note that the assessee had entered into international transaction with its associated enterprises at abroad and the value of the same exceeded ₹.15 crores. Accordingly, the Assessing Officer referred the case to the Transfer Pricing Officer and vide order dated 24.01.2013, the TPO proposed adjustments for arms length value of ₹.1,25,70,350/- towards computed service charges receivable by the assessee for the Corporate Guarantee provided to its associated enterprises viz., AALM (Avia Ashok Leyland Motors, the Czech Republic) and ALUAE (Ashok Leyland UAE) as well as ₹.1,40,847.88 in respect of additional risk absorbed in the loan of Euro 3 millions granted by the assessee to its associated enterprise, Albonair GmBH on 25.08.2008.
Accordingly, the Assessing Officer added the proposed adjustments of ₹.1,27,11,197.88 [₹.1,25,70,350 + 1,40,847.88] to the total income of the assessee. We find the ld. CIT(A), by placing reliance on the decision of this Tribunal in assessee’s own case for Y 2008-09 in held that the guarantee commission is outside the ambit of international transaction to which ALP adjustment can be made and allowed the ground raised by the assessee.
The ld. DR, by placing reliance on the decision in the case of PCIT v. Redington (India) Ltd. [2021] 430 ITR 298 (Madras) and submits that by holding the inherent risk cannot be ruled out in providing guarantees, the Hon’ble High of Madras confirmed TPO’s order in that case and prayed that the same may be followed in the present case.
The ld. AR placed reliance on the decision of this Tribunal in assessee’s own case for AY 2019-20 in & Ors dated 07.07.2025 and submits that the Tribunal restricted the adjustment to 0.5% of the guarantee value and prayed that the same may be followed. The relevant paras 5.1 to 5.3 are reproduced herein below: 5.1 Heard both the parties. The Ld. AR for the assessee has contended that since the corporate guarantee was provided without any cost to the AE, it didn't have any bearing of profits, income, losses of the assessee and therefore could not be regarded as an international transaction and be benchmarked under the transfer pricing provisions. We however note that the provisions of Section 92B has been amended by the Finance Act 2012,
whereby, in terms of the Explanation to Section 92B, the guarantees issued by an assessee has been clarified to be in the nature of international transaction. We note that the Hon'ble Bombay High Court in the case of CIT v. Everest Kanto Cylinders Ltd [2015] 58 taxmann.com 254/232 Taxman 307/378 ITR 57 (Bombay) has considered identical issue in light of the provisions of Section 92B and the Explanation, came to a conclusion that the corporate guarantee issued by an entity on behalf of its AE is an international transaction. We further note that, this identical issue came up before the Hon'ble jurisdictional Madras High Court in the case of Pr. CIT v. Redington (India) Ltd. [2020] 122 taxmann.com 136/[2021] 430 ITR 298 (Madras), wherein, the Hon'ble Madras High Court held that, inherent risk cannot be ruled out in providing guarantees and hence the transaction involving issuance of corporate guarantee is covered by the definition of international transaction consequent to retrospective amendment made by the Finance Act, 2012 and, accordingly adjustments are required to be made for guarantee commission. The relevant findings taken note of by us is as follows: - “75. The concept of Bank Guarantees and Corporate Guarantees war explained in the decision of the Hyderabad Tribunal in the case of Prolifics Corporation Limited. In the said case, the Revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of Section 92B does not enlarge the scope of the term international transaction to include the Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on P & L account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, the Tribunal upheld the adjustments made on guarantee commissions both on the guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise.
In the light of the above decisions, we hold that the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and restore the order passed by the DRP.” 5.2 In view of the above decisions (supra), we therefore hold that the transaction of corporate guarantee is an international transaction subject to transfer pricing provisions. Accordingly, the first plea of the assessee is hereby rejected. 5.3 The next issue now to be adjudicated is the ALP value of the guarantee commission. In this regard, the Ld. AR has relied on the quote provided by Bank(s) in which they have proposed to extend bank guarantee at 0.325% and has urged that the ALP adjustment be restricted to 0.325%. We find that the Hon’ble Bombay High Court in the case of Everest Kanto Cylinders Ltd (supra) has observed that bank guarantees cannot be equated with corporate guarantees and accordingly discarded the rates provided by Banks. Following the same, the assessee’s reliance on bank quote of 0.325% is rejected. In the same decision (supra), the Hon'ble Bombay High Court had ascertained the ALP guarantee commission at 0.5%, which was followed by the Hon'ble jurisdictional High Court in the case of Redington (India) Ltd. (supra) wherein also the ALP corporate guarantee commission was fixed at 0.5%. Following the same, we direct the AO to restrict adjustment to 0.5% of the guarantee value. This ground is therefore partly allowed. 19. In view of the above decision of the Tribunal for AY 2019-20, we find the Tribunal, by placing reliance on the decision of the Hon’ble High Court of Madras in the case of PCIT v. Redington (India) Ltd. (supra) held the transaction of Corporate Guarantee is an international transaction and directed the Assessing Officer to restrict the Arms Length Price on Guarantee Commission at 0.5% on account adjustment to guarantee value. Thus, following the same, we also direct the Assessing Officer to restrict the adjustment to 0.5% of the guarantee value for the assessment year under consideration. Thus, the additional ground raised by the Revenue is partly allowed.
I.T.A. No. 895/Chny/2018 AY 2009-10
Ground No. 1 is general in nature and requires no adjudication.
Ground No. 2 (2.1 to 2.3) raised by the assessee in challenging the action of the ld. CIT(A) in confirming the addition made on account of additional depreciation on assets.
We note that the Assessing Officer discussed the said issue in para 9 of the assessment order, wherein, it is noted that the assessee claimed additional depreciation on assets, which are grouped in block of asset eligible for depreciation @ 100%. The Assessing Officer rejected the same and added the claim of additional depreciation on assets to the income of the assessee. The ld. CIT(A), by placing reliance on the order of the Tribunal in assessee’s own case for AY 2005-06 & 2007-08 in M.P. Nos. 23 & 24/Mds/2017 dated 24.03.2017 held against the assessee and confirmed the order of the Assessing Officer.
The ld. AR placed reliance on record the order dated 24.03.2027 passed in M.P. Nos. 23 & 24/Mds/2017 arising out of & 2838/Mds/2014 for AY 2005-06 & 2007-08 and fairly conceded that the Tribunal rectified the mistake in para 6.1 of the original order and held the ground raised
by the assessee is “dismissed” instead of “allowed”. The relevant para 5 of the said order is reproduced herein below:
5. We have heard both the parties and perused the material on record. Admittedly, the Tribunal wrongly placed reliance in para No. 4.4 of the Order of Tribunal for assessment year 2006-07 in assessee’s own case in vide order dated 16.02.2016 and it is to be replaced by Para 6.4 as discussed earlier. Accordingly, this ground of assessee is “Dismissed” instead of “allowed”.
24. Accordingly, we find no infirmity in the order of the ld. CIT(A) in confirming the order of the Assessing Officer in denying depreciation @ 100% on the assets. Thus, ground No. 2 (2.1 to 2.3) raised by the assessee are dismissed.
Ground No. 3 (3.1 to 3.6) raised by the assessee in challenging the action of the ld. CIT(A) in confirming the order of the Assessing Officer on account of disallowance under section 14A r.w. Rule 8D.
Having heard both the parties, at the outset, we note that the Assessing Officer discussed the said issue in para 11 of the assessment order and made disallowance under section 14A r.w. Rule 8D considering the disallowance already made by the assessee. Having aggrieved, an appeal preferred by the assessee before the ld. CIT(A), wherein, the ld. CIT(A) confirmed the addition made by the Assessing Officer in making the disallowance under section 14A r.w. Rule 8D.
Before us, the ld. AR raised an issue of recording satisfaction by the Assessing Officer, but, however, on perusal of the assessment order, the Assessing Officer discussed in detail, why the disallowance made by the assessee is not acceptable with reference to exempt income issue from para 11 to 11.5 in pages 7 to 11 of the assessment order. Therefore, we find no force in the arguments of the ld. AR that there was no satisfaction at all in this regard. But, however, considering the Delhi Special Bench of ITAT in the case of ACIT v. Vireet Investments P. Ltd. 58 ITR (Trib) 313 – Del-SB, we remand the matter to the file of the Assessing Officer for his consideration for computation of disallowance taking into account those investments, which yielded exempt income. Thus, Ground No. 3 (3.1 to 3.6) raised by the assessee are partly allowed.
Ground No. 4 (4.1 to 4.4) raised by the assessee in challenging the action of the ld. CIT(A) in confirming the order of the Assessing Officer on account of disallowance of deduction claimed in respect of loss taken to Hedge Reserve Account.
Having heard both the parties, at the outset, we note that the Assessing Officer discussed the said issue in para 13 of the assessment order and made disallowance on the loss taken to Hedge Reserve by placing reliance on CBDT Instruction No. 03/2010 dated 23.03.2010 and treated the loss as a notional loss. On appeal, the ld. CIT(A) by following the decision of the Delhi Benches of the ITAT in the case of Bechtel India (P.) Ltd. v. ACIT [2017] 82 taxmann.com 301 (Delhi – Trib) confirmed the order of the Assessing Officer and dismissed the ground raised by the assessee.
The ld. AR, by relying upon the decision in the case of CIT v. Woodward Governor (I) Pvt. Ltd. 312 ITR 254 (SC) submits that the unrealized loss to be recognized in Hedge Reserve as per AS-30 w.e.f. 01.04.2008. He placed on record first appellate order for AY 2010-11 and submits that the unrealised loss is an accrued liability and claimed in Memo for AY 2009-10, but, it was debited to P & L in AY 2010-11 and suo-moto disallowed in the return filed by the assessee for AY 2010-11. The ld. CIT(A), in his order for AY 2010-11 discussed the issue in detail vide para 16.3 and observed that in order to avoid double deduction, the debit to P&L in AY 2010-11 was nullified by the assessee by adding back the amount of loss in the memo of income for AY 2010-11, but, however, the claim of deduction for AY 2009-10 was not allowed by the AO and confirmed by the CIT(A). Thus, the ld. CIT(A) opined that if the claim of deduction made in memo of AY 2009-10 is not allowed, the assessee's adding back of the amount in AY 2010-11 will effectively result in denying this loss of forex changes on account of revenue item. Therefore, the ld. CIT(A) directed the Assessing Officer to allow the deduction for AY 2010- 11 and relevant para 16.3 is reproduced herein below: 16.3 have gone through the documents submitted before me on this issue and on scrutiny of the computation of total income for AY 2009-10 and 2010-11. In the return of income for AY 2009-10, the Appellant claimed this amount as a deduction in the memo of income as the loss had occurred on account of restatement of forex liability on account of the forward contracts in that year by placing reliance on the Supreme Court decision in CIT vs. Woodward Governor India P Limited [2009] 312 ITR 254 (SC)/For AY 2010-11, when the underlying transaction such as import of raw materials actually crystallize, the hedge reserve is reversed and the loss is debited to Profit and Loss account. Though this amount was claimed as a deduction in for AY 2009-10, the debit to P&L was in AY 2010-11. In order to avoid double deduction, the debit to P&L in AY 2010-11 was nullified by the Appellant by adding back the amount of loss in the memo of income for AY 2010-11 However, the claim of deduction for AY 2009-10 was not allowed by the AO and confirmed by the CIT(A) and is pending before the ITAT. If the claim of deduction made in memo of AY 2009-10 is not allowed, the Appellant's adding back of the amount in AY 2010-11 will effectively result in denying this loss of forex changes on account of revenue item. Therefore, in order to mitigate the double whammy both in AY 2009-10 (by the AO in his assessment order which has been upheld by the CIT(A)) and in AY 2010-11 (by suo-moto disallowance in return by the Appellant), the Appellant is eligible to delete the voluntary disallowance made in the return of income for AY 2010-11 which the AO is directed to allow. This ground is allowed in favour of the Appellant. However, if the disallowance is deleted
for A.Y. 2009-10, the AO may accordingly recalculate the loss and add the same back to the income of the appellant in this year.
From the above order of the ld. CIT(A), we note that the assessee has reversed the hedge reserve and the loss is debited to profit and loss account for AY 2010-11 and accordingly, the ld. CIT(A) allowed deduction for AY 2010-11 vide his order dated 15.12.2023. Therefore, since the loss was not debited in AY 2009-10 and actually not crystallized, the deduction claimed by the assessee and disallowed by the Assessing Officer, which was confirmed by the ld. CIT(A) stands sustained. Thus, Ground No. 4 (4.1 to 4.4) raised by the assessee is dismissed.
Ground No. 5 (5.1 & 5.2) raised by the assessee in challenging the action of the ld. CIT(A) in confirming the order of the Assessing Officer on account of excess depreciation on diesel generator.
Having heard both the parties, at the outset, we note that the Assessing Officer discussed the said issue in para 15 of the assessment order and by relying upon the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Areva T & D India Ltd. in TCA No. 792 of 2004 dated 14.02.2012, the Assessing Officer restricted the higher rate of depreciation claimed on Diesel Generator [40% being installed in second half) to 7.5% (half of 15%) as applicable for normal plant & machinery and disallowed the excess claim of depreciation at 32.5% and added to the total income of the assessee. Relying upon various case law including the decision of the Hon’ble High Court of Madras in the case of CIT v. S.R.P. Tools Ltd. [2000] 242 ITR 636 (Mad), wherein, the Hon’ble High Court was pleased to hold that the generator installed in assessee’s factory for generating electricity would not come under the category of “electrical machinery”, but, would come under the classification of plant and machinery, the ld. CIT(A) confirmed the order of the Assessing Officer in restricting depreciation on Diesel Generator to 15% treating the same as plant and machinery and it is justified. We find no infirmity in the order passed by the ld. CIT(A) as no contrary material was brought on record. Thus, ground No. 5(5.1 & 5.2) raised by the assessee is dismissed.
Ground No. 6 (6.1 & 6.2) raised by the assessee in challenging the action of the ld. CIT(A) in restricting the depreciation at 60% on UPS, stabilizers, etc.
Having heard both the parties, at the outset, we note that the Assessing Officer discussed the said issue in para 15(b) at page 19 of the assessment order. By relying upon various case law, the Assessing Officer held that the UPS only regulates supply of electricity and does not save electricity and accordingly, restricted the claim of depreciation at 15%, holding that the UPS is not earmarked as Energy Saving Device in Part – A iii(3)(ix)E of New Appendix – 1 of IT Rules, 1962. The ld. CIT(A), by following the decision of this Tribunal in assessee’s own case for AYs 2005-06 to 2007-08 in 2826 & 2827/Mds/2014, wherein, the Tribunal allowed the claim of depreciation on UPS at 60%, directed the Assessing Officer to allow the depreciation on UPS at 60%. Thus, we find no infirmity in the order passed by the ld. CIT(A) and it is justified. Thus, ground No. 6 (6.1 & 6.2) raised by the assessee are dismissed.
Ground No. 7 (7.1 to 7.6.) raised by the assessee in challenging the action of the ld. CIT(A) in confirming the disallowance of weighted deduction on R & D expenditure for want of Form 3CL.
Having heard both the parties, at the outset, we note that the Assessing Officer discussed the said issue in para 16 at pages 20 & 21 of the assessment order. Since the assessee has not fulfilled the conditions stipulated in section 35(2AB) i.e., non-production of the certificate in Form 3CL from the competent authority, the Assessing Officer disallowed the R & D capital expenditure. The ld. CIT(A) confirmed the order of the Assessing Officer.
Before us, the ld. AR placed reliance on the decision of this Tribunal in assessee’s own case for AY 2011-12 in vide order dated 25.09.2024 and prayed to follow the same. We have perused the decision of this Tribunal in assessee’s own case for AY 2011-12, wherein, similar issue has been adjudicated. The relevant para 4 of the said decision is reproduced herein below: 4. Ground No.2 is regarding disallowance of claim of weighted deduction on R&D expenditure to the tune of Rs.23,13,53,553/-, since expenditure was not approved by DSIR. It is noted that similar ground has already been allowed by this Tribunal for AY 2010-11 in the assessee’s own case in by holding as under: 3.3 We have heard both the parties and perused the material available on record. We note that the assessee has 3 in-house R&D facilities for undertaking scientific research duly approved by DSIR as an in-house R&D centre per requirement of section 35(2AB). Deduction claimed for these approved R&D centers was duly audited and certified by statutory auditors in annual report. DSIR is merely authority for approval of R&D facility. Once facility is approved, expenditure incurred automatically qualifies for deduction u/s.35(2AB), irrespective of DSIR approval. It is noted that the R & D Facility has been approved as required by the authority i.e. DSIR. The settled position was that once facility is approved, expenditure incurred in this regard qualifies for deduction u/s.35(2AB) of the Act until amendment was brought in Rule 6(7A) of the of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) w.e.f. 01.07.2016 (relevant to AY 2017-18). Therefore, the AO/Ld.CIT(A) erred in disallowance the weighted deduction u/s.32(2AB) of the Act on the expenditure incurred in an approved in-house R & D facility. In other words, deduction can’t be restricted to the amount of expenditure quantified by the DSIR before the AY 2017-18. Similar issue came up before this Tribunal in the case of M/s.Sundaram Fasteners Ltd., in wherein, at Para No.4.3 at Page No.12, it has been observed as under: 4.3 We note that the assessee has claimed deduction of Rs.14,20,60,668/- and the AO allowed deduction of only Rs.13,52,44,00/- as approved by the DSIR. It is noted that prior to the amendment brought in Rule 6(7A) of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) w.e.f. 01.07.2016 i.e. from AY 2016-17, the prescribed authority had to submit its report in relation to the approval of in-house facility and development facility in Form 3CL to DG (Income
Tax Exemption) within sixty days of its granting approval unlike after the amendment, the quantum of expenditure incurred for in-house research & development facility by assessee was required to be given by the authority; and since, the year under consideration (i.e. AY 2013-14) and the amendment was not applicable as noted (supra) in the case of Crompton Greaves Ltd., the assessee has rightly contended that amendment was not applicable, and the prescribed authority was not required to quantify the expenditure and had to only give report in relation to the approval of in-house facility and development facility, and therefore, in the absence of any requirement of law, the AO erred in curtailing the expenditure and consequent weighted deduction claimed by assessee. Therefore, the non-approval of the expenditure by the DSIR doesn’t disentitle the assessee to make the claim of Rs.14,20,60,668/- in the relevant year under consideration and hence, the AO couldn’t have disallowed Rs.68,16,668/-. Therefore, respectfully following the ratio of the decision of the Tribunal in the case of Crompton Greaves Ltd. (supra), we allow grounds of appeal of the assessee and direct deletion of Rs.68,16,668/-.
5. Respectfully following the order of the Tribunal in assessee’s own case (supra) on the same reasons mutatis mutandis, we allow this ground of appeal and direct the AO to allow weighted deduction on R&D expenditure to the tune of Rs.23,13,53,553/-.
39. Since the issue involved in this appeal is squarely covered in favour of the assessee by the decision of this Tribunal in assessee’s own case for AY 2011-12 reproduced herein above, we set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to allow weighted deduction on R & D expenditure as claimed by the assessee. Thus, the ground No. 7 (7.1 to 7.6) raised by the assessee is allowed.
Ground No. 8 (8.1 to 8.6.) raised by the assessee in challenging the action of the ld. CIT(A) in not disposing the ground of appeal raised by the assessee on disallowance of export commission under section 40(a)(i) of the Act for non-deduction of TDS.
41. Having heard both the parties, at the outset, we note that the Assessing Officer discussed the said issue in para 17(b) at pages 23 to 26 of the assessment order. Since the payment of overseas commission to non-resident agents is deemed to accrue and arise in India and is taxable under the Income Tax Act, the Assessing Officer held that the overseas commission payment is liable for TDS under section 195 of the Act. Since the commission payment was made without deduction of tax at source, the Assessing Officer disallowed ₹.64,08,38,611/- under section 40(a)(i) of the Act and added to the total income of the assessee. On perusal of para 17.2 of the impugned order, we note that the ld. CIT(A) has taken up the issue for consideration by mentioning that “13. Disallowance u/s 40(a)(i) on commission – ₹.64,08,38,611 and software ₹.7,38,31,224/-, but by oversight, omitted to adjudicate the issue raised by the assessee. The ld. AR referred to page 68 of the paper book and submits that the Coordinate Bench in the case of SQS India BFSI Ltd. V. DCIT in & 224/Chny/2019 dated 03.05.2021 and prayed to remand the matter to the file of the ld. CIT(A) for his verification towards payment of commission charges to overseas commission agents. Having no adjudication by the ld. CIT(A), considering the submissions of the ld. AR, we deem it proper to remand the matter to the file of the ld. CIT(A) to adjudicate the issue on merits in accordance with law. Thus, ground No. 8 (8.1 to 8.6) raised by the assessee is allowed for statistical purposes.
42. Ground No. 9 (9.1 to 9.3) raised by the assessee in challenging the action of the ld. CIT(A) in upholding the disallowance computed under section 14A read with Rule 8D while computing the book profit under section 115JB of the Act.
43. Having heard both the parties, at the outset, we note that the Assessing Officer determined the disallowance under section 14A r.w. Rule 8D at para 11.4 of the assessment order and disallowed ₹.17,25,97,612/-. The Assessing Officer also made similar disallowance while computing book profit under section 115JB of the Act at page 28 of the assessment order, which was confirmed by the ld. CIT(A).
The ld. AR submits that the ld. CIT(A) did not consider the sub missions of the assessee that section 115JB of the Act is a separate code by itself and the provisions relating to normal tax computation cannot be imported into it and therefore, the Assessing Officer does not have jurisdiction to go beyond the net profit shown in the P&L a/c except to the extent provided in the said section and relied on the decision in the case of ACIT v. Vireet Investment Pvt. Ltd. [2017] 58 ITR(T) 313 (Del – Trib.)(SB) and prayed to delete the disallowance computed under section 115JB of the Act. We have perused the Delhi ITAT Special Bench decision in the case of ACIT v. Vireet Investment Pvt. Ltd. (supra), wherein, it was held that disallowance under section 14A r.w. Rule 8D has no application while computing book profit under section 115JB of the Act. Accordingly, we direct the Assessing Officer to delete the disallowance made while computing book profit under section 115JB of the Act. Thus, ground No. 9 (9.1 to 9.3) raised by the assessee is allowed.
Ground No. 10 (10.1 & 10.2) raised by the assessee in challenging the action of the ld. CIT(A) in not disposing the assessee’s submissions on the failure of the Assessing Officer grant credit for TDS Certificate.
We find no discussion whatsoever made by the Assessing Officer and the ld. CIT(A) in their respective orders. On perusal of the Form 35, we find no such ground challenging short credit was raised by the assessee. We note no details identifying the short credit items are filed by the ld. AR as per undertaking given during the course of hearing and having no evidence on record, the ground No. 10 (10.1 & 10.2) raised by the assessee is dismissed.
In the result, the appeal filed by the Revenue is partly allowed and the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced on 05th February, 2026 at Chennai.