DCIT, KOLKATA vs. HIMADRI SPECIALITY CHEMICAL LIMITED, KOLKATA

ITA 2223/KOL/2025Status: DisposedITAT Kolkata17 February 2026AY 2012-1316 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the CIT(A) on both grounds. Regarding the first issue, concerning the ALP adjustment on interest on loans, the Tribunal found no infirmity in the CIT(A)'s order. While the specific reasoning of the Tribunal on this point is not fully detailed in the provided extract, it implicitly agreed with the CIT(A)'s deletion of the addition. The second issue concerned the deduction under Section 35(2AB) for R&D expenditure. The Tribunal agreed with the CIT(A) that once a research facility is approved by the DSIR, the entire expenditure incurred by the assessee is eligible for deduction under Section 35(2AB). The claim is not dependent on the amount of expenditure approved by the DSIR. The Tribunal relied on the decisions in M/s Natural Remedies Pvt. Ltd., Eicher Motors Limited (Delhi High Court), and Commissioner of Income-tax vs. Sun Pharmaceutical Industries Ltd. (Gujarat High Court), which held that the expenditure allowable under Section 35(2AB) cannot be restricted to the amount specified by the DSIR in Form 3CL. Therefore, the AO had wrongly disallowed the deduction, and the addition made on this count was deleted. Consequently, the appeal filed by the Revenue was dismissed.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2011-12. The assessee, Himadri Speciality Chemical Limited, is a public limited company engaged in coal tar processing. The case was selected for scrutiny. The Transfer Pricing Officer (TPO) made an upward adjustment of ₹3,97,99,637 on account of interest on a loan provided by the assessee to its associated enterprise, M/s Himadri Global Industries Ltd. (HGIL). The Assessing Officer (AO) added this amount to the assessee's income. The CIT(A) deleted this addition. The Revenue's appeal also pertains to the disallowance of a deduction claimed by the assessee under Section 35(2AB) of the Income Tax Act, 1961, relating to research and development expenditure. The AO disallowed a portion of the weighted deduction claimed on capital expenditure, limiting it to the amount quantified by the DSIR.

What were the issues?

1. Whether the CIT(A) erred in deleting the Arm's Length Price (ALP) adjustment of ₹3,97,99,637 made by the AO/TPO on account of interest on loan to an associated enterprise, under Section 92CA of the Income Tax Act, 1961? Assessee's contention (as per CIT(A)'s order): The loan was extended to HGIL, which ultimately benefited Shandong Dawn Himadri Chemical Industry Limited. The creditworthiness of the ultimate beneficiary (Shandong) should be considered, not the intermediary (HGIL). Reliance was placed on OECD Transfer Pricing Guidelines on Financial Transactions. The domestic prime lending rate is not applicable for international transactions; LIBOR should be used as the benchmark. The tested party for determining ALP is the assessee, not the AE. Revenue's contention (as per TPO's report and AO's action): The TPO rejected the assessee's methodology and applied a lower-ranked cost of funds method based on the assessee's financials. The TPO disregarded LIBOR and applied a credit spread for a CCC-rated borrower to the assessee's cost of funds. The TPO also treated a conversion of a past loan into equity as an interest-free loan. 2. Whether the CIT(A) erred in allowing the deduction under Section 35(2AB) of the Income Tax Act, 1961, on capital expenditure for research and development, where the AO had restricted the deduction to the amount quantified by the DSIR, under Section 35(2AB) of the Income Tax Act, 1961? Assessee's contention: Once the R&D facility is approved by DSIR, the entire expenditure incurred on such approved facility is allowable under Section 35(2AB). The provisions of Section 35(2AB) do not restrict the claim to the amount quantified by DSIR. Reliance was placed on ITAT Bangalore in M/s. Natural Remedies Pvt. Ltd., ITAT Delhi in Eicher Motors Limited, and Ahmedabad ITAT (affirmed by Gujarat High Court) in M/s. Sun Pharmaceutical Industries Ltd. Revenue's contention (as per AO's action): The AO observed that the expenditure considered for Section 35(2AB) was only ₹101.80 lakhs as per the DSIR certificate, not the ₹728.36 lakhs claimed by the appellant. Therefore, the deduction of 200% on the excess amount was disallowed.

Which sections of the Income-tax Act were involved?

Section 92CA,Section 115JB,Section 35(2AB)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, KOLKATA

Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM

For Appellant: Shri S.K. Tulsiyan&, Ms. Puja Somani, ARs
For Respondent: Shri Praveen Kishore, DR
Hearing: 12.02.2026Pronounced: 17.02.2026

Per Rajesh Kumar, AM:

This is an appeal preferred by the Revenue against the order of the Commissioner of Income-tax (Appeals), Kolkata-22(hereinafter referred to as the “Ld. CIT(A)”] dated 08.01.2025 for the AY 2011-12. 2. At the outset, we observe from the appeal folder that there is a delay of 147 days in filing the appeal by the department in support of which a condonation petition was filed. It was stated in the condonation petition that the delay has occurred due to obtaining the administrative approvals from the competent authorities, which took quite a long time and accordingly, the delay may be condoned. The Id

The order continues below.

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