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Facts
The Revenue is in appeal against the order of the CIT(A) for assessment year 2016-17. The assessee company was engaged in manufacturing and trading of chemicals. The AO made additions to the total income, and on appeal, the CIT(A) granted partial relief. The Revenue has raised several grounds concerning disallowance under Section 14A, ESOP deduction, and scientific research expenditure.
Held
The Tribunal held that the grounds related to Section 14A disallowances (grounds 1-5) were partly allowed, with some matters being restored to the AO for verification. Ground 6 regarding ESOP deduction was allowed for statistical purposes, restoring it to the AO for factual verification. Ground 7 concerning scientific research expenditure was also allowed partly for statistical purposes and restored to the AO for proper verification.
Key Issues
Disallowance under Section 14A, treatment of ESOP expenses, and eligibility of deduction for scientific research expenditure.
Sections Cited
14A, 8D, 37(1), 35(2AB)
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Income Tax Appellate Tribunal, MUMBAI BENCH “B” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
This appeal by the Revenue is directed against order dated 19.09.2023 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following ground:
Navin Fluorine International Ltd Navin Fluorine International Ltd
"Whether on the facts and circumstances of the case and in law, "Whether on the facts and circumstances of the case and in law, "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed the Ld. CIT(A) failed to appreciate that assessee failed to establish to appreciate that assessee failed to establish that the interest cost and other expenses have no co that the interest cost and other expenses have no co that the interest cost and other expenses have no co-relation with the tax free investment?" the tax free investment?" 2. "Whether on the facts and circumstances of the case and in law, "Whether on the facts and circumstances of the case and in law, "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that preference the Ld.CIT(A) failed to appreciate that preference shares would be shares would be capable of earning dividend income electing from year 31.03.2014 capable of earning dividend income electing from year 31.03.2014 capable of earning dividend income electing from year 31.03.2014 which will yield tax free income hence preference shares arc also to which will yield tax free income hence preference shares arc also to which will yield tax free income hence preference shares arc also to be included in working out average value of investment for the be included in working out average value of investment for the be included in working out average value of investment for the purpose of computing disallowance u/s.14A?" purpose of computing disallowance u/s.14A?" 3. "Whether on the facts and circumstance of the case and in law, the "Whether on the facts and circumstance of the case and in law, the "Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) was right in presuming investments are made out of own Ld. CIT(A) was right in presuming investments are made out of own Ld. CIT(A) was right in presuming investments are made out of own funds for the purpose of calculations of disallowance u/s. 14A funds for the purpose of calculations of disallowance u/s. 14A funds for the purpose of calculations of disallowance u/s. 14A r.w.Rule 8d(2)(fi) when the issue of mixed funds is pending r.w.Rule 8d(2)(fi) when the issue of mixed funds is pending r.w.Rule 8d(2)(fi) when the issue of mixed funds is pending before the Larger Bench of the Supreme Court in the case of S.A. Builders the Larger Bench of the Supreme Court in the case of S.A. Builders the Larger Bench of the Supreme Court in the case of S.A. Builders and Tulip Star Hotel Ltd. and more so when no nexus is and Tulip Star Hotel Ltd. and more so when no nexus is and Tulip Star Hotel Ltd. and more so when no nexus is established by the assessee to prove that own funds were utilised established by the assessee to prove that own funds were utilised established by the assessee to prove that own funds were utilised to made the investment?" to made the investment?" 4. "Whether on the facts and circumsta "Whether on the facts and circumstance of the case and in law, the nce of the case and in law, the Ld. CIT(A) was justified in holding that disallowance u/s. 14A is to Ld. CIT(A) was justified in holding that disallowance u/s. 14A is to Ld. CIT(A) was justified in holding that disallowance u/s. 14A is to be restricted to the exempt income, whereas in Finance Act 2022. be restricted to the exempt income, whereas in Finance Act 2022. be restricted to the exempt income, whereas in Finance Act 2022. explanation to Section 14A has been inserted which provides for explanation to Section 14A has been inserted which provides for explanation to Section 14A has been inserted which provides for applicability of the said applicability of the said section even in the absence of exempt section even in the absence of exempt income, which being clarificatory in nature has retrospective effect." income, which being clarificatory in nature has retrospective effect." income, which being clarificatory in nature has retrospective effect." 5. "Whether on the facts and circumstances of the case and in law, "Whether on the facts and circumstances of the case and in law, "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition u/s. 8D(2)(iii) the Ld. CIT(A) was justified in deleting the addition u/s. 8D(2)(iii) the Ld. CIT(A) was justified in deleting the addition u/s. 8D(2)(iii) where the AO where the AO suo-moto had considered only Dividend yiclding moto had considered only Dividend yiclding investments for computing the disallowance of Rs. 37,09,000/ investments for computing the disallowance of Rs. 37,09,000/ investments for computing the disallowance of Rs. 37,09,000/-, In view of the above fact that the assessee earned exempt income of view of the above fact that the assessee earned exempt income of view of the above fact that the assessee earned exempt income of Rs. 1,99,12,077/ Rs. 1,99,12,077/- the disallowance by AO should have been the disallowance by AO should have been confirmed by the Ld confirmed by the Ld. CIT(A)." 6. "The Ld. CIT(A) has erred in deleting the addition made on account "The Ld. CIT(A) has erred in deleting the addition made on account "The Ld. CIT(A) has erred in deleting the addition made on account of ESOP deduction without appreciating the fact that the company of ESOP deduction without appreciating the fact that the company of ESOP deduction without appreciating the fact that the company has chosen to issue share under ESOP in less than the market has chosen to issue share under ESOP in less than the market has chosen to issue share under ESOP in less than the market value, hence, even if it is treated as expenditure, value, hence, even if it is treated as expenditure, then it is capital in then it is capital in nature" nature" 7. "The Ld. CIT(A) erred in allowing deduction u/s. 35(2AB) of "The Ld. CIT(A) erred in allowing deduction u/s. 35(2AB) of "The Ld. CIT(A) erred in allowing deduction u/s. 35(2AB) of scientific research expenditure on Form 3CL wherein fact the actual scientific research expenditure on Form 3CL wherein fact the actual scientific research expenditure on Form 3CL wherein fact the actual expenses incurred on scientific research byassessee is less than expenses incurred on scientific research byassessee is less than expenses incurred on scientific research byassessee is less than Form 3CL." Form 3CL."
Briefly stated fact Briefly stated facts of the case are that during the year under s of the case are that during the year under consideration, the assessee company was engaged in the business consideration, the assessee company was engaged in the business consideration, the assessee company was engaged in the business of manufacturing and trading of manufacturing and trading of chemicals mainly chemicals mainly, Refrigerant Gases, Hydro Fluorine Gases, Hydro Fluorine Acid and Fluoro Chemicals. For the year and Fluoro Chemicals. For the year
Navin Fluorine International Ltd Navin Fluorine International Ltd under consideration, th under consideration, the assessee filed return of income on e assessee filed return of income on 28.11.2016 declaring total 28.11.2016 declaring total income of Rs.81,07,65,030/ of Rs.81,07,65,030/-. The return of income filed by the assessee was selected for scrutiny and of income filed by the assessee was selected for scrutiny and of income filed by the assessee was selected for scrutiny and statutory notices under the Income statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s were issued and complied with. In the assessment completed u/s were issued and complied with. In the assessment completed u/s 143(3) of the Act on 21.12. 143(3) of the Act on 21.12.2018, the Assessing Officer made various 2018, the Assessing Officer made various additions and assessed total income at Rs.82,13,36,180/-. The additions and assessed total income at Rs.82,13,36,180/ additions and assessed total income at Rs.82,13,36,180/ book profit for the purpose of section 115JB of the Act was book profit for the purpose of section 115JB of the Act was book profit for the purpose of section 115JB of the Act was computed at Rs.1,15,99,97,311/ computed at Rs.1,15,99,97,311/-. Since, the tax payable as per . Since, the tax payable as per normal provisions of the Act normal provisions of the Act was being more than the tax computed being more than the tax computed u/s 115JB of the Act u/s 115JB of the Act, the tax liability of the assessee the tax liability of the assessee was finally computed under the normal provisions of the Act. under the normal provisions of the Act.
On further appeal, the Ld. CIT(A) allowed On further appeal, the Ld. CIT(A) allowed part relief to the part relief to the assessee. Aggrieved, the Revenue is in the Revenue is in appeal before the Tribunal by appeal before the Tribunal by way of raising grounds as reproduced above. way of raising grounds as reproduced above.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. relevant material on record.
4.1 The ground Nos. 1 to 5 of the appeal are related to ground Nos. 1 to 5 of the appeal are related to ground Nos. 1 to 5 of the appeal are related to disallowance u/s 14A r.w.r. 8 disallowance u/s 14A r.w.r. 8D of the Income-tax Rules, 1962 (in tax Rules, 1962 (in short ‘the Rules’). Facts in brief qua the issue in dispute are that short ‘the Rules’). Facts in brief qua the issue in dispute are that short ‘the Rules’). Facts in brief qua the issue in dispute are that during the year under consideration, the assessee company earned during the year under consideration, the assessee company earned during the year under consideration, the assessee company earned total total dividend dividend income income of of Rs.5,07,43,917/-, Rs.5,07,43,917/ out of which Navin Fluorine International Ltd Navin Fluorine International Ltd Rs.1,99,12,077/- was claimed a was claimed as exempt dividend income. s exempt dividend income. But no suo-motu disallowance was made by the assessee disallowance was made by the assessee. The Assessing . The Assessing Officer issued show cause to the assessee as why the disallowance Officer issued show cause to the assessee as why the disallowance Officer issued show cause to the assessee as why the disallowance u/s 14A of the Act should not be made in accordance with u/s 14A of the Act should not be made in accordance with u/s 14A of the Act should not be made in accordance with provisions of Rule 8D. After consideri provisions of Rule 8D. After considering the submission of the ng the submission of the assessee, the Assessing Officer made disallowance under Rule assessee, the Assessing Officer made disallowance under Rule assessee, the Assessing Officer made disallowance under Rule 8D(2)(ii) at Rs.25,17,000/ 8D(2)(ii) at Rs.25,17,000/- and disallowance under Rule 8D(2)(iii) at and disallowance under Rule 8D(2)(iii) at Rs.37,09,000/-, thus, , thus, the total disallowance u/s 14A the total disallowance u/s 14A was made at Rs.62,84,000/-. The Assessing Offic . The Assessing Officer made corresponding increase er made corresponding increase in the book profit also in the book profit also for said disallowance u/s 14A of the Act. said disallowance u/s 14A of the Act.
4.2 On On further further appeal appeal, regarding regarding the the disallowance disallowance of of Rs.25,17,000/- under Rule 8D(2)(ii), the assessee submitted that under Rule 8D(2)(ii), the assessee submitted that under Rule 8D(2)(ii), the assessee submitted that assessee’s own fund exceed assessee’s own fund exceeded the value of investement in shares , investement in shares , and hence following the decision Hon’ble Supreme Court in the case following the decision Hon’ble Supreme Court in the case following the decision Hon’ble Supreme Court in the case of South India Bank Ltd. v. CIT [2021] 130 tamann.com 178, there of South India Bank Ltd. v. CIT [2021] 130 tamann.com 178 of South India Bank Ltd. v. CIT [2021] 130 tamann.com 178 is assumption that investment are made from the own funds if the is assumption that investment are made from the own funds if the is assumption that investment are made from the own funds if the own funds exceed the value of the own funds exceed the value of the investment and hence no investment and hence no disallowance could be made in respect of expenditure u/s 14A of disallowance could be made in respect of expenditure u/s 14A of disallowance could be made in respect of expenditure u/s 14A of the Act. The assessee also submitted that in its own case the Co- the Act. The assessee also submitted that in its own case the Co the Act. The assessee also submitted that in its own case the Co ordinate Bench of the Tribunal has decided the matter in favour of ordinate Bench of the Tribunal has decided the matter in favour of ordinate Bench of the Tribunal has decided the matter in favour of the assessee for assessment year the assessee for assessment years 2007-08 to 2011-12. 12.
4.3 Similarly, regarding the disallowance of Rs.37,09,000/ Similarly, regarding the disallowance of Rs.37,09,000/ Similarly, regarding the disallowance of Rs.37,09,000/- under Rule 8D(2)(iii), the assessee submitted that for quantifying Rule 8D(2)(iii), the assessee submitted that for quantifying Rule 8D(2)(iii), the assessee submitted that for quantifying
Navin Fluorine International Ltd Navin Fluorine International Ltd investment only those investments should be considered on which investment only those investments should be considered on which investment only those investments should be considered on which dividend (exempt) income is earned during the dividend (exempt) income is earned during the year. Accordingly, year. Accordingly, the assessee submitted that disallowance should be restricted to the assessee submitted that disallowance should be restricted to the assessee submitted that disallowance should be restricted to Rs.20,44,000/- instead stead of Rs.37,09,000/-. The assessee submitted . The assessee submitted that the Co-ordinate Bench of the Tribunal for assessment years ordinate Bench of the Tribunal for assessment years ordinate Bench of the Tribunal for assessment years 2009-10 to 2012-13 has decided the matter 13 has decided the matter in favour of the in favour of the assessee. After considering the submission of the assessee, the Ld. assessee. After considering the submission of the assessee, the Ld. assessee. After considering the submission of the assessee, the Ld. CIT(A) deleted the additions observing as under: CIT(A) deleted the additions observing as under:
“Ground Ground No No 1:- 1: Pertains Pertains to to addition addition of of Rs.25,17,000/- Rs.25,17,000/ and Rs.37,09,000/- - made by Ld. A.O. u/s 14A read with rules 8D(2)(i made by Ld. A.O. u/s 14A read with rules 8D(2)(ii)&(iii) of the Act. From the submission of the appellant, it is construed that the matter has From the submission of the appellant, it is construed that the matter has From the submission of the appellant, it is construed that the matter has already been decided in his favour on similar facts for assessment years already been decided in his favour on similar facts for assessment years already been decided in his favour on similar facts for assessment years 2010-11 and 2011 11 and 2011-12 by Hon'ble ITAT. The orders of the higher judicial 12 by Hon'ble ITAT. The orders of the higher judicial authority are bei authority are being herewith followed. The appellant has sought relief in computing book The appellant has sought relief in computing book profit u/s 115JB profit u/s 115JB wherein disallowance u/s 14A quantified by invoking rule 8D(2)(iii) was disallowance u/s 14A quantified by invoking rule 8D(2)(iii) was disallowance u/s 14A quantified by invoking rule 8D(2)(iii) was not considered by Ld. not considered by Ld. AO. The appellant has relied on the decision of AO. The appellant has relied on the decision of Special Bench the Delhi I Special Bench the Delhi ITAT in the matter of ACIT vs. Vireet Investment TAT in the matter of ACIT vs. Vireet Investment Pvt. Ltd. (2017) 82 taxmann.com 415. The Ld. Pvt. Ltd. (2017) 82 taxmann.com 415. The Ld. AO is directed to allow AO is directed to allow adding back of only such amount as debited the P&L account which is adding back of only such amount as debited the P&L account which is adding back of only such amount as debited the P&L account which is directly related to earning of exempt income keeping in view the above directly related to earning of exempt income keeping in view the above directly related to earning of exempt income keeping in view the above judicial precedent. judicial precedent. The additions made by the. Ld. AO are directed to be deleted. Ground The additions made by the. Ld. AO are directed to be deleted. Ground The additions made by the. Ld. AO are directed to be deleted. Ground no.1 is allowed. no.1 is allowed.” 4.4 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. As far as ground No. 1 of the appeal is relevant material on record. As far as ground No. 1 of the appeal is relevant material on record. As far as ground No. 1 of the appeal is concerned, it is general in nature. As far as the ground No. 2 of the it is general in nature. As far as the ground No. 2 of the it is general in nature. As far as the ground No. 2 of the appeal is concerned, the Ld. counsel for the assessee submitted appeal is concerned, the Ld. counsel for the assessee submitted appeal is concerned, the Ld. counsel for the assessee submitted that the assessee has made that the assessee has made no investment in the preference shares preference shares
Navin Fluorine International Ltd Navin Fluorine International Ltd and therefore, the issue of considering dividend income in the issue of considering dividend income in the issue of considering dividend income in the preference share for the purpose of working out the average ference share for the purpose of working out the average ference share for the purpose of working out the average investment u/s 14A of the Act investment u/s 14A of the Act does not arise. The Ld. DR could not . The Ld. DR could not controvert the factual submission of the assessee that no preference controvert the factual submission of the assessee that no preference controvert the factual submission of the assessee that no preference shares have been invested by the assessee. I shares have been invested by the assessee. In view of the above n view of the above, the ground No.2c raised by the Revenue is dismissed as infructuous. raised by the Revenue is dismissed as infructuous. raised by the Revenue is dismissed as infructuous.
4.5 As far as the ground No. 3 raised on the issue in dispute is As far as the ground No. 3 raised on the issue in dispute is As far as the ground No. 3 raised on the issue in dispute is concerned, the Ld. CIT(A) has followed binding precedent on the the Ld. CIT(A) has followed binding precedent on the the Ld. CIT(A) has followed binding precedent on the issue in dispute and mere pendency of the appeal filed by the issue in dispute and mere pendency of the appeal filed b issue in dispute and mere pendency of the appeal filed b Revenue before larger bench Revenue before larger bench, the issue cannot be decided in favour he issue cannot be decided in favour of the Revenue. Accordingly, said ground of appeal of the Revenue of the Revenue. Accordingly, said ground of appeal of the Revenue of the Revenue. Accordingly, said ground of appeal of the Revenue is dismissed.
In ground No. 4 of the appeal, the Revenue has submitted that In ground No. 4 of the appeal, the Revenue has In ground No. 4 of the appeal, the Revenue has amendment made to section 14A of the Act made to section 14A of the Act for disallowance disallowance not to be restricted to the extent of the exempt income, is retrospective in be restricted to the extent of the exempt income, is retrospective in be restricted to the extent of the exempt income, is retrospective in nature. Whereas, we find that Hon’ble Delhi High Court in the case we find that Hon’ble Delhi High Court in the case we find that Hon’ble Delhi High Court in the case of Pr. CIT (Central) v. Era Infrastructure (India) Ltd. 448 ITR 674 of Pr. CIT (Central) v. Era Infrastructure (India) Ltd. 448 ITR 674 of Pr. CIT (Central) v. Era Infrastructure (India) Ltd. 448 ITR 674 held that amendment to sec held that amendment to section 14A of the Act by Finance Act, tion 14A of the Act by Finance Act, 2022 by way of insertion of Explanation providing for applicability 2022 by way of insertion of Explanation providing for applicability 2022 by way of insertion of Explanation providing for applicability of the provisions of even in absence of the exempted income, is of the provisions of even in absence of the exempted income of the provisions of even in absence of the exempted income prospective in nature. prospective in nature. Accordingly, said ground of the Revenue is Accordingly, said ground of the Revenue is dismissed.
Navin Fluorine International Ltd Navin Fluorine International Ltd 4.6 In ground No. 5, the Revenue has raised the issue that nd No. 5, the Revenue has raised the issue that nd No. 5, the Revenue has raised the issue that Assessing Officer himself has only considered the dividend yielding Assessing Officer himself has only considered the dividend yielding Assessing Officer himself has only considered the dividend yielding assets for computing disallowance of Rs.37,09,000/ for computing disallowance of Rs.37,09,000/- under Rule for computing disallowance of Rs.37,09,000/ 8D(2)(iii) of Rules. Before the Ld. CIT(A) . Before the Ld. CIT(A), the assessee submitted the assessee submitted that while computing disallowance under rule 8D(2)(iii) , only computing disallowance under rule 8D(2)(iii) , only computing disallowance under rule 8D(2)(iii) , only dividend yielding assets should be taken. The assessee computed dividend yielding assets should be taken. The assessee computed dividend yielding assets should be taken. The assessee computed disallowance disallowance accordingly accordingly and and requested requested for for restricting restricting the the disallowance to the extent of Rs.20,44,000/ disallowance to the extent of Rs.20,44,000/- under Rule 8D(2)(iii) of under Rule 8D(2)(iii) of the Act. We are of opinion that in principle both parties are at same We are of opinion that in principle both parties are at same We are of opinion that in principle both parties are at same page and thus dispute only is of verification of computation, page and thus dispute only is of verification of computation, page and thus dispute only is of verification of computation, Accordingly, this matter need verification at the end of the AO this matter need verification at the end of the AO. this matter need verification at the end of the AO 4.7 We find that the Ld. CIT(A) has followed the finding of the Co We find that the Ld. CIT(A) has followed the finding of the Co We find that the Ld. CIT(A) has followed the finding of the Co- ordinate Bench of the Tribunal in the case of the assessee for earlier rdinate Bench of the Tribunal in the case of the assessee for earlier rdinate Bench of the Tribunal in the case of the assessee for earlier years, the grounds of the appeal of the Revenue are adjudicated of the appeal of the Revenue are adjudicated of the appeal of the Revenue are adjudicated subject to the disallowance under Rule 8D(2)(iii) of the Rules, is subject to the disallowance under Rule 8D(2)(iii) of the Rules subject to the disallowance under Rule 8D(2)(iii) of the Rules restored back to the file of the Assessing Officer for verification of restored back to the file of the Assessing Officer for restored back to the file of the Assessing Officer for the quantification of the average value of the investment from which the quantification of the average value of the investment from which the quantification of the average value of the investment from which exempted dividend income was earned during the year under exempted dividend income was earned during the year under exempted dividend income was earned during the year under consideration and with the direction to with the direction to examine the claim of the examine the claim of the assessee of restricting the disallowance assessee of restricting the disallowance to Rs.24,44,000/ 4,44,000/-. The ground No. 5 of the appeal of the Revenue 5 of the appeal of the Revenue is accordingly allowed accordingly allowed partly for statistical purposes. partly for statistical purposes.
Navin Fluorine International Ltd Navin Fluorine International Ltd 4.8 The ground No. 6 of the appeal of the Revenue relates to ESOP The ground No. 6 of the appeal of the Revenue relates to ESOP The ground No. 6 of the appeal of the Revenue relates to ESOP deduction. According to the Revenue, the expenditure is in the deduction. According to the Revenue, the expenditure is in the deduction. According to the Revenue, the expenditure is in the nature of capital expenditure expenditure. We find that this claim has been . We find that this claim has been raised before the Ld. CIT(A) for the first time and the Ld. CIT(A) has raised before the Ld. CIT(A) for the first time and the Ld. CIT(A) has raised before the Ld. CIT(A) for the first time and the Ld. CIT(A) has not provided any opportunity of being heard to the Assessing not provided any opportunity of being heard to the Assessing not provided any opportunity of being heard to the Assessing Officer. The Ld. CIT(A) decided the claim of deduction of the Officer. The Ld. CIT(A) decided the claim of deduction of the Officer. The Ld. CIT(A) decided the claim of deduction of the assessee observing as under: bserving as under:
“Ground No.4:- - The appellant has contended that deduction u/s 37(1) of The appellant has contended that deduction u/s 37(1) of the Act may be allowed in respect of ESOP expenses of Rs. the Act may be allowed in respect of ESOP expenses of Rs. the Act may be allowed in respect of ESOP expenses of Rs. 1,93,63,067/-. The above ground was not allowed by the Ld. AO since no such claim The above ground was not allowed by the Ld. AO since no such claim The above ground was not allowed by the Ld. AO since no such claim was filed in the revised was filed in the revised return of income as per the decision of Hon'ble return of income as per the decision of Hon'ble Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). The appellant has taken this additional ground in his appeal 323 (SC). The appellant has taken this additional ground in his appeal 323 (SC). The appellant has taken this additional ground in his appeal citing the decision of Jurisdictional High Court in CIT vs. Prut citing the decision of Jurisdictional High Court in CIT vs. Prut citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and Judicial precedent cited by the appellant, legal nature of the ground and Judicial precedent cited by the appellant, legal nature of the ground and to meet end of justice, the additional ground is hereby admitted. to meet end of justice, the additional ground is hereby admitted. to meet end of justice, the additional ground is hereby admitted.” 4.9 We have heard rival submission of We have heard rival submission of the parties and perused the the parties and perused the Since, the Ld. CIT(A) has allowed the relevant material on record. relevant material on record. Since, the Ld. CIT(A) has allowed the claim of the assessee claim of the assessee merely following the legal precedents , merely following the legal precedents , without providing opportunity of being heard to the Assessing Officer and providing opportunity of being heard to the Assessing Officer and providing opportunity of being heard to the Assessing Officer and without verification of without verification of the claim of the assessee. Therefore, in the the claim of the assessee. Therefore, in the interest of substantial justice, we restore this issue back to the file interest of substantial justice, we restore this issue back to the file interest of substantial justice, we restore this issue back to the file in accordance with law after of the Assessing Officer of the Assessing Officer for deciding in accordance with law after factual verification of the claim of the assessee. The ground No. 6 of factual verification of the claim of the assessee. The ground No. 6 of factual verification of the claim of the assessee. The ground No. 6 of the appeal of the Revenue is accordingly allowed for statistical he appeal of the Revenue is accordingly allowed for statistical he appeal of the Revenue is accordingly allowed for statistical purposes.
Navin Fluorine International Ltd Navin Fluorine International Ltd 4.10 As far as ground No. 7 of the appeal of the Revenue related to As far as ground No. 7 of the appeal of the Revenue related to As far as ground No. 7 of the appeal of the Revenue related to deduction u/s 35(2AB) of the Act of scientific research expenditure deduction u/s 35(2AB) of the Act of scientific research expenditure deduction u/s 35(2AB) of the Act of scientific research expenditure is concerned, the Ld. CIT(A) admitted this a the Ld. CIT(A) admitted this additional ground and dditional ground and allowed the relief observing as under: allowed the relief observing as under:
“Ground No.3: Ground No.3:- The appellant has contended that deduction u/s The appellant has contended that deduction u/s 35(2AB) should be at gross expenditure and not at net expenditure 35(2AB) should be at gross expenditure and not at net expenditure 35(2AB) should be at gross expenditure and not at net expenditure thereby seeking an additional deduction of Rs.82,86,246/ thereby seeking an additional deduction of Rs.82,86,246/-. The above ground was not allowed by the Ld. AO since no such claim ground was not allowed by the Ld. AO since no such claim ground was not allowed by the Ld. AO since no such claim was filed in the revised return of income as per the decision of Hon'ble was filed in the revised return of income as per the decision of Hon'ble was filed in the revised return of income as per the decision of Hon'ble Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). The appellant has taken this additional gr 323 (SC). The appellant has taken this additional ground in his appeal ound in his appeal citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and Judicial precedent cited by the appellant, legal nature of the ground and Judicial precedent cited by the appellant, legal nature of the ground and to meet end of justic to meet end of justice, the additional ground is hereby admitted. e, the additional ground is hereby admitted. The appellant had claimed gross revenue expenditure of Rs. 1060.50 The appellant had claimed gross revenue expenditure of Rs. 1060.50 The appellant had claimed gross revenue expenditure of Rs. 1060.50 lakhs before the lakhs before the DSIR. However, it was granted net revenue DSIR. However, it was granted net revenue expenditure at Rs. 1019.07 lakhs as the amount eligible for weighted expenditure at Rs. 1019.07 lakhs as the amount eligible for weighted expenditure at Rs. 1019.07 lakhs as the amount eligible for weighted deduction u/s 35 deduction u/s 35(2AB) of the Act. The appellant has contented that the (2AB) of the Act. The appellant has contented that the expression "any expenditure" on scientific research on in house Kal as expression "any expenditure" on scientific research on in house Kal as expression "any expenditure" on scientific research on in house Kal as approved by the prescribed authority should only relate to the approved by the prescribed authority should only relate to the approved by the prescribed authority should only relate to the expenditure which has been incurred and not the net expenditure aft expenditure which has been incurred and not the net expenditure aft expenditure which has been incurred and not the net expenditure after reducing income earned The appellant has cited the case of CIT vs. reducing income earned The appellant has cited the case of CIT vs. reducing income earned The appellant has cited the case of CIT vs. Micro Lab Ltd. (2016) 383 ITR 490 (Kar) to support his contentions. Micro Lab Ltd. (2016) 383 ITR 490 (Kar) to support his contentions. Micro Lab Ltd. (2016) 383 ITR 490 (Kar) to support his contentions. Since, the legal issue on similar facts has been decided by higher Since, the legal issue on similar facts has been decided by higher Since, the legal issue on similar facts has been decided by higher judicial authorities, the ground of appeal no.3 is judicial authorities, the ground of appeal no.3 is allowed.” 4.11 In the case, the Assessing Officer has originally restricted the In the case, the Assessing Officer has originally restricted the In the case, the Assessing Officer has originally restricted the claim of deduction u/s 35(2AB) of the Act to the extent of Rs.495.36 claim of deduction u/s 35(2AB) of the Act to the extent of Rs.495.36 claim of deduction u/s 35(2AB) of the Act to the extent of Rs.495.36 lakhs i.e. the amount i.e. the amount which was approved by the Department of which was approved by the Department of Scientific and Industrial Research (DSIR) in Scientific and Industrial Research (DSIR) in Form No. 3CL Form No. 3CL, as against claim of Rs.5 Rs.506.82 lakhs made by the assessee and 6.82 lakhs made by the assessee and accordingly, accordingly, accordingly, the the the Assessing Assessing Assessing Officer Officer Officer made made made disallowance disallowance disallowance of of of Rs.11,45,000/-. However, before the Ld. CIT(A) the assessee made . However, before the Ld. CIT(A) the assessee made . However, before the Ld. CIT(A) the assessee made
Navin Fluorine International Ltd Navin Fluorine International Ltd claim for allowing deduction on the gross expenditure of Rs. deduction on the gross expenditure of Rs. deduction on the gross expenditure of Rs.1060.50 lakhs instead of net expenditure lakhs instead of net expenditure of Rs. 1019.07 lakhs of Rs. 1019.07 lakhs. The Ld. CIT(A) allowed the claim following the judicial decision in the case of CIT(A) allowed the claim following the judicial decision in the case of CIT(A) allowed the claim following the judicial decision in the case of CIT v. Microlabs Ltd. [2017] 383 ITR 490. We find that in the said CIT v. Microlabs Ltd. [2017] 383 ITR 490. We find that in the said CIT v. Microlabs Ltd. [2017] 383 ITR 490. We find that in the said decision the Hon’ble Karnataka High Court has decision the Hon’ble Karnataka High Court has restored the matter restored the matter to the lower authorities for verification. The relevant finding of the to the lower authorities for verification. The relevant finding of the to the lower authorities for verification. The relevant finding of the Hon’ble Court is reproduced as under: Hon’ble Court is reproduced as under:
“18. As we have already seen, these receipts are credited to profit and 18. As we have already seen, these receipts are credited to profit and 18. As we have already seen, these receipts are credited to profit and loss accounts are part of normal sales. They are, there loss accounts are part of normal sales. They are, therefore, not to be fore, not to be reduced from the expenditure incurred by the assessee on carrying out reduced from the expenditure incurred by the assessee on carrying out reduced from the expenditure incurred by the assessee on carrying out scientific research on which deduction under section 35(2AB) has to be scientific research on which deduction under section 35(2AB) has to be scientific research on which deduction under section 35(2AB) has to be allowed. We are, therefore, of the view that there is no merit in ground allowed. We are, therefore, of the view that there is no merit in ground allowed. We are, therefore, of the view that there is no merit in ground No. 2 raised by the Revenu No. 2 raised by the Revenue and that the order passed by the e and that the order passed by the Commissioner of Income Commissioner of Income-tax (Appeals) dated April 9, 2014 under section tax (Appeals) dated April 9, 2014 under section 154 of the Act cannot be sustained and the same is hereby reversed. 154 of the Act cannot be sustained and the same is hereby reversed. 154 of the Act cannot be sustained and the same is hereby reversed. Thus, by the assessee is allowed, while ground No. Thus, I.T.A. No. 764/B/14 by the assessee is allowed, while ground No. Thus, I.T.A. No. 764/B/14 by the assessee is allowed, while ground No. 2 raised by the Revenue is dismissed." the Revenue is dismissed." Therefore it is settled proposition as per the precedence of this Tribunal Therefore it is settled proposition as per the precedence of this Tribunal Therefore it is settled proposition as per the precedence of this Tribunal that the income earned by the assessee from the R&D centre cannot be that the income earned by the assessee from the R&D centre cannot be that the income earned by the assessee from the R&D centre cannot be reduced from the expenditure for the purpose of allowing the deduction reduced from the expenditure for the purpose of allowing the deduction reduced from the expenditure for the purpose of allowing the deduction under Section 35(2AB) because the said income is part of the total 35(2AB) because the said income is part of the total income of the assessee. Accordingly, in principle, we decide this issue in income of the assessee. Accordingly, in principle, we decide this issue in income of the assessee. Accordingly, in principle, we decide this issue in favour of the assessee that the income earned by the assessee from the favour of the assessee that the income earned by the assessee from the favour of the assessee that the income earned by the assessee from the R&D centre is not required to be reduced from the expend R&D centre is not required to be reduced from the expend R&D centre is not required to be reduced from the expenditure for the purpose of deduction under Section 35(2AB) of the Act. purpose of deduction under Section 35(2AB) of the Act. However, the nature of the receipt as claimed by the assessee being However, the nature of the receipt as claimed by the assessee being However, the nature of the receipt as claimed by the assessee being income from the R&D centre has not been verified by the authorities income from the R&D centre has not been verified by the authorities income from the R&D centre has not been verified by the authorities below and therefore to that extent this aspect requ below and therefore to that extent this aspect requires a proper ires a proper verification and examination. Accordingly, we set aside this issue to the verification and examination. Accordingly, we set aside this issue to the verification and examination. Accordingly, we set aside this issue to the file of Assessing Officer for limited purpose of verification of the said file of Assessing Officer for limited purpose of verification of the said file of Assessing Officer for limited purpose of verification of the said amount received by the assessee and claimed as income of the R&D amount received by the assessee and claimed as income of the R&D amount received by the assessee and claimed as income of the R&D centre and then allow the cla centre and then allow the claim of the assessee in view of the above im of the assessee in view of the above observations and findings. observations and findings.” 4.12 Accordingly, following the finding of the Hon’ble Court Accordingly, following the finding of the Hon’ble Court Accordingly, following the finding of the Hon’ble Court(supra), the matter in the instant case is also restored to the file of the matter in the instant case is also restored to the file of the matter in the instant case is also restored to the file of the Assessing Officer for proper verification of the co Assessing Officer for proper verification of the contract income and ntract income and Navin Fluorine International Ltd Navin Fluorine International Ltd expenditure incurred and expenditure incurred and thereafter, allow the deduction in allow the deduction in accordance with law. The ground No. 7 of the appeal is accordingly accordance with law. The ground No. 7 of the appeal is accordingly accordance with law. The ground No. 7 of the appeal is accordingly allowed for statistical purposes. allowed for statistical purposes.
In the result, the appeal of the Revenue is allowed partly for In the result, the appeal of the Revenue is allowed partly for In the result, the appeal of the Revenue is allowed partly for statistical purposes.
Order pronounced in the open Court on nounced in the open Court on 04/0 /06/2024.