BHARAT ELECTRONICS LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, LARGE PAYERS TAX UNIT, CIRCLE-1, BANGALORE

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore

IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

ITA No.1067/Bang/2023 Assessment Year: 2018-19 Bharat Electronics Limited Registered Office Outer Ring Road Nagawara ACIT Vs. Bangalore 560 045 Circle-1 Bangalore PAN NO.AAACB5985C ASSESSEE RESPONDENT Assessee by : Ms. Richa Bakiwala, A.R. Revenue by : Ms. Neera Malhotra, D.R. Date of Hearing : 08.02.2024 Date of Pronouncement : 08.02.2024 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against order of NFAC for the assessment year 2018-19 dated 16.10.2023 passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). The assessee has raised following grounds of appeal: i. The order of the Ld. CIT (A) is opposed to the law, facts, and circumstances of the case. ii. The order is passed against the principle of natural justice and thus, liable to be quashed. iii. The learned CIT(A) has erred in making the disallowance under Section 14A read with Rule 8D.

The learned CIT(A) has erred in holding that the Assessing Officer has invoked iv. Rule 8D after recording the satisfaction and that the claim made by the Appellant is incorrect.

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 2 of 15 The learned CIT(A) failed to consider that the calculation of expenses related v. to exempted income cannot be on a notional basis, as it would result in the imposition of an artificial method of computation.

The Ld. CIT(A) erred in incorrectly holding the arbitrary disallowance made vi. by the Ld. Assessing officer mechanically under the erstwhile provisions. For the year under consideration, the provisions as contained under Rule 8D entails the disallowance of 1 percent and not 0.5 percent. The learned CIT(A) erred in not appreciating the fact that income generated vii. is out of the investment in a Joint Venture and Subsidiaries of the entity which is in the form of strategic investment.

The learned CIT(A) erred in considering the fact that the Appellant has viii. undertaken investments with their own funds and no amount of borrowed funds has been utilized for the purpose of such investments.

The learned C1T(A) ought to have considered the fact that for the purpose of ix. Rule 8D, only those investments relating to exempted income should be considered for the average and not the The learned CIT(A) erred in computing the aggregate of average monthly x. investments by including the loans issued to the subsidiaries,

xi. The learned CIT(A) has erred in making disallowance of Rs.7,32,05,792/, expenditure made under section 35(2AB) of the Act.

The learned AO & CIT(A) has erred in making additions under section under xii. section 35(2AB) which were not the subject matter of scrutiny notice issued under section 143(2) of the act.

The learned CIT(A) erred in confirming the additions made by the learned xiii. Assessing officer without admitting the fact that if the impugned expenditure is not allowed as a weighted deduction @ 150% under section 35(2AB) of the act, it ought to have allowed as normal expenditure @ 100% under section 37(1} of the Act. xiv. The Appellant craves leave to add, alter, substitute, and delete any or all the grounds of appeal urged above.

For the above and other grounds to be urged during the hearing of the xv. appeal,

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 3 of 15 2. Ground Nos.1, 2, 14 & 15 are general in nature, which do not require any adjudication. 3. Ground Nos.3 to 10 are with regard to disallowance u/s 14A r.w. Rule 8D of the I.T. Rules. 4. Facts of the case are that the Assessee made investments with two Subsidiaries BEL Optronic Devices Ltd., Pune, and BEL-Thales Systems Limited, Bengaluru along with two Associates GE-BE Private Ltd., Bengaluru, and Mana Effluent Treatment Plant Ltd., Hyderabad. During the year under consideration, the Assessee has received a dividend income of Rs. 4.04 crores from BEL Optronic Devices Ltd., and GE-BE Private Ltd., which was claimed as an exemption under Section 10(34) of the Act. In this regard, the ld. A.R. for the assessee submitted that the main business of the Assessee is electronics. The Assessee is not engaged in the business of purchase and sale of securities. It was only the idle funds, which were invested in two Subsidiaries and two associate companies in the form of strategic investment. The investment in question was made in previous years, and no additional investment was undertaken in the current year. The Assessee possessed substantial share capital, reserves, and surpluses, none of which attracted any interest, Therefore, the Assessee did not make any disallowance under Section 14A of the Act pertaining to the exempt income. It is crucial to highlight that the Assessee did not expend any funds to earn this income. She further submitted that the investment in BEL Optronic Devices Ltd., BEL-Thales Systems Ltd., GE-BE Private Ltd., and Mana Effluent Treatment Plant Ltd. has been made in earlier years, and in the year under consideration, no expenditure as such has been incurred relating to such exempted income. She submitted that the Assessee had sufficient surplus funds to make the investment which is evident from the audited financials furnished during the proceedings. Accordingly, they have not availed of any loans or borrowing to make such investments.

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 4 of 15 However, the learned Assessing Officer has invoked the provisions of section 14A r.w. rule 8D mechanically and made a disallowance of Rs. 1,61,57,000/- even when no actual expenditure was incurred relating to the exempt income. Moreover, she submitted that the learned Assessing Officer made a disallowance on the annual average of the monthly average of the opening and closing balances of the value of total investments in BEL Optronic Devices Ltd., BEL-Thales Systems Ltd., GE-BE Private Ltd., and Mana Effluent along with the amount of loan given to BEL Optronic Devices Ltd. without limiting it to the investment made only in BEL Optronic Devices Ltd., and GE-BE Private Ltd. from which exempt income is derived during the year.

4.1. Further, the ld. A.R. submitted that the learned CIT(A) has upheld the disallowance of Rs. l,61,57,000/-made by the learned Assessing Officer. She submitted that the impugned investments made were in the earlier years and no fresh investments were made in the year under consideration and thus, no expenditure was made for earning dividend income. Moreover, as evident from the audit report, there were no interest-bearing borrowings for the relevant assessment year made for the purpose of investment. The Assessee had huge share capital, reserves, and surpluses which do not carry any interest. Therefore, she submitted that making any disallowance of any expenditure for earning exempt income under section 14A on presumption without there being any nexus is unwarranted. In this regard, she placed reliance on the case of Commissioner of Income-tax -III vs Gujarat Narmada Valley Fertilizers Co. Ltd [2014] 42 taxmann.com 270 (Gujarat), the relevant extract is produced herein below for ready reference -

"Both the authorities have also noted faultlessly that the dividend income which was earned out of the investments made in the earlier years and there was no investment made in the year under consideration. With the availability of the huge interest-free funds in the form of share capital, reserves, etc., the Assessing Officer had not correctly applied the provisions of law to the issue"

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 5 of 15 4.2 Furthermore, the ld. A.R. for the Assessee submitted that the income in question arises from strategic investments made in joint ventures and subsidiaries, representing a form of strategic investment. The Assessee during the assessment proceedings clarified that the dividend income resulted from investments in GE-BE Private Limited, Bangalore, and BEL Optronic Devices Ltd, Pune, categorized as strategic investments. However, the learned Assessing Officer erroneously disallowed expenditure under section 14Aof the Act, contending that the Assessee's investments have the potential to yield dividend income and that some expenditure is necessary to earn any income, however, the Assessee did not make any disallowance under section 14A of the Act.

Only the investments yielding non-taxable income have to be considered, and not all investments:

4.3 The ld. A.R. for the assessee further submitted that without prejudice to the above, the ld. AO made the disallowance under rule 8D(2)(iii) of Rs.1,61,57,000/- by incorrectly calculating such disallowance under rule 8D(2)(iii). Rule 8D(2){iii) postulated that in the calculation of the, disallowance amount, "an amount equal to one percent of the annual average of monthly averages of opening and closing balances of value of investments, income from which' does not or shall not form part of the total income" should be taken into consideration. Thus, it is not all investment but only that which is expressly spelled out in rule 8D(2)(iii) read with section 14A is to be reckoned for the purpose of calculation of the required average percentage.

4.4 In this regard, she placed reliance on the judicial pronouncement of the Delhi High Court in the case of ACS India Ltd. v. Astt. CIT [2015] 62 taxmann.com 71/235 Taxman 22/374 ITR 108 (Delhi) wherein it was held that for the purpose of Section 14A, instead of taking into account total

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 6 of 15 investment, investment attributable to the dividend {exempt income) was required to be adopted and thereafter disallowance was to have arrived. A similar issue came before the Hon'ble Supreme Court in the case of Pr. CIT v. India bulls Capital Services Ltd [2020] 114 taxmann.com 647 wherein the SLP of revenue was dismissed upholding the validity of judgment in ACB India Ltd.'s (supra) stating that “where the assessee in his return has himself apportioned expenditure, but the Assessing Officer was not accepting the said apportionment, in that eventuality, the Assessing Officer will have to record its satisfaction to this effect. We find that no such satisfaction has been recorded by the AO to come to the conclusion to invoke the provisions of Section 14A (2), and the disallowance is directed to be deleted.”

4.5 Further, she submitted that the Assessee has made disallowance only considering the investments that have generated exempt income which is accepted in the ITAT order passed in the Assessee's own case has ITA No. 395/Bang/2Q23 for the AY 2014-15 & AY 2012-13 has ITA 394/BANG/2023 - AY 2012-13 wherein it was held that only investment that has generated exempt income should be taken into consideration while calculating disallowance under section 14A of the Act.

4.6 Thus, she submitted that while calculating the disallowance under section 14A of the Act, only the investments that have generated exempt income should be taken into consideration. In other words, if an investment has not yielded any exempt income during a given period, the associated expenses or deductions related to that investment may not be eligible for disallowance. Therefore, the investments that are not capable of yielding the dividend income need to be excluded while calculating the exact disallowance under section 14A of the Act.

4.7 It is hence submitted by the ld. A.R. that the learned CIT(A) has failed to appreciate that since no income was received from any other

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 7 of 15 investments, the same cannot be considered while computing the quantum of disallowance under Rule 8(2)(iii). Accordingly, the disallowance should be restricted to the sum of Rs. 1,17,13,000/-, which is 1% of the average investment made in the M/s. GE- BE Pvt. Ltd and BELOP Devices Limited. 5. The ld. D.R. relied on the order of lower authorities. 6. We have heard the rival submissions and perused the materials available on record. In our opinion, this issue came for consideration before this Tribunal in assessee’s own case in ITA No.395/Bang/2023 dated 30.08.2023, wherein held as under: 7. “We have heard the rival submissions and perused the material on record. We are of the view that only investment yielding non-taxable income has to be considered and not all the investments. This proposition has been held correct by the Hon’ble Delhi High Court in the case of ACB India Ltd., Vs. ACIT (supra). The Hon’ble Delhi High Court had held that for the purpose of section 14A, instead of taking into account total investment, the investment attributable to dividend (exempt income) was only required to be adopted and thereafter the disallowance was to be arrived. The relevant finding of the Hon’ble Delhi High Court in the case of ACB India Ltd., Vs. ACIT (supra) reads as follows: “8. The Assessing Officer, instead of adopting the average value of investment of which income is not part of the total income, i.e., the value of tax exempt investment, chose to factor in the total investment itself. Even though the Commissioner of Income-tax (Appeals) noticed the exact value of the investment which yielded taxable income he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of Rs. 38,61,09,287 with the figure of Rs. 3,53,26,800 and, thereafter, arrive at the exact disallowance of .05 per cent.” 8. A similar view was taken by the Hon’ble Delhi High Court in the case of PCIT Vs. Indiabulls Capital Services Ltd., in ITA No.181/2019 (judgment dated 26.02.2019). The SLP filed by the Revenue against Hon’ble Delhi High Court’s judgment in the case of PCIT Vs. Indiabulls Capital Services Ltd., (supra) was dismissed by the Hon’ble Apex Court [reported in (2020)] 114 taxmann.com 647. In view of the aforesaid judicial pronouncement, we hold that while calculating disallowance under section 14A of the Act, only investment that have generated exempt income should be taken into consideration.”

6.1 Later, same issue came in assessee’s own case in ITA No.626/Bang/2023 dated 12.10.2023, wherein the Tribunal held as under:

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 8 of 15 “5. We have heard the rival submissions and perused the materials available on record. In this case, it is an admitted fact that assessee has earned exempt income of Rs.3.90 crores. As such, as rightly pointed out by the ld. D.R., the ld. AO has to apply Rule 8D(2)(iii) of the I.T. Rules to compute the disallowance u/s 14A of the Act. However, the investment yielding non-taxable income has to be considered and not all the investment. This proposition has been held correct by the Hon’ble Delhi High Court in the case of ACB India Ltd., Vs. ACIT (supra). The Hon’ble Delhi High Court had held that for the purpose of section 14A, instead of taking into account total investment, the investment attributable to dividend (exempt income) was only required to be adopted and thereafter the disallowance was to be arrived. The relevant finding of the Hon’ble Delhi High Court in the case of ACB India Ltd., Vs. ACIT (supra) reads as follows: “8. The Assessing Officer, instead of adopting the average value of investment of which income is not part of the total income, i.e., the value of tax exempt investment, chose to factor in the total investment itself. Even though the Commissioner of Income-tax (Appeals) noticed the exact value of the investment which yielded taxable income he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of Rs. 38,61,09,287 with the figure of Rs. 3,53,26,800 and, thereafter, arrive at the exact disallowance of .05 per cent.” 5.1 A similar view was taken by the Hon’ble Delhi High Court in the case of PCIT Vs. Indiabulls Capital Services Ltd., in ITA No.181/2019 (judgment dated 26.02.2019). The SLP filed by the Revenue against Hon’ble Delhi High Court’s judgment in the case of PCIT Vs. Indiabulls Capital Services Ltd., (supra) was dismissed by the Hon’ble Apex Court [reported in (2020)] 114 taxmann.com 647. In view of the aforesaid judicial pronouncement, we hold that while calculating disallowance under section 14A of the Act, only investment that have generated exempt income should be taken into consideration. 5.2 Further, same view was taken by this Tribunal in assessee’s own case in ITA No.395/Bang/2023 dated 30.8.2023. Accordingly, we remit the issue to the file of ld. AO for limited purpose of re-computation of disallowance u/s 14A of the Act r.w. Rule 8D(2)(iii) of the I.T. Rules. It is needless to make it clear that while applying Rule 8D(2)(iii), an amount equal to one half percent of the average of the value of the investment that have generated exempted income should be taken into consideration and not the total investment.” 6.2 In view of this, we direct the ld. AO to recompute the disallowance u/s 14A of the Act only in respect of investment that have generated as exempted income. Ordered accordingly. These grounds of appeal are partly allowed.

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 9 of 15 7. Next ground Nos.(xi) to (xiii) are with regard to disallowance of Rs.7,32,05,792/- towards the expenditure made u/s 35 (2AB) of the Act. 7.1 The ld. A.R. submitted that the Assessee being engaged in the business of manufacture and sale of professional-grade electronic equipment incurred in-house scientific research expenditure eligible for deduction under Section 35{2AB) of the Act. Given this, it had claimed a weighted deduction of Rs. 13,57,89,55,292/- as under: Nature of expense Amount of expense Deduction Claimed @150% Revenue Expenditure Rs. 8,02,29,91,000/- Rs. 12,03,44,86,500/- Capital Expenditure Rs. 1,02,96,45,861/- Rs. 1,54,44,68,792/- Total Rs. 9,05,26,36,861/- Rs. 13,57,89,55,292/-

7.2 She submitted that it is imperative to note that such expenditure was incurred for the units and divisions/ facility- of the Assessee. Further, in context to the above, the tax auditor of the Assessee company duly certified the genuineness of such expenditure and its eligibility for weighted deduction under section 35(2)(AB), as evident from the Tax Audit Report in Form 3CD is on page no. 10 of the paper book. The assessment proceedings were initiated vide notice dated 22 September 2019. During the course of the assessment proceedings, the Assessee was requested to file a copy of Form 3CL issued by DSIR which was received by the Assessee on 19 January 2021. !n pursuance to the same, the Assessee submitted Form 3CL dated 19-01-2021, placed on page no. 11 to 13 of the paper book, wherein the DSIR quantified the eligible expenditure under Section 35(2AB) as Rs. 9,00,38,32,861/- as against the expenditure of Rs. 9,05,26,36,861/-, resulting in a difference of Rs. 4,88,04,000/-. The learned Assessing Officer disallowed the weighted deduction of 150% on Rs. 4,88,04,000/-which works out to be Rs. 7,32,06,000/-In other words, the learned Assessing Officer,

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 10 of 15 on basis the of Form 3CL dated 19-01-2021 issued by DSIR made the additions of Rs. Rs. 7,32,06,000/- considering the same ineligible for deduction under Section 35(2AB) of the Act.

7.3 For the ease of reference, she submitted the calculation of the difference amount claimed between the return of income and form 3CL is as under: Particulars Amount as Amount as Difference per Return per Form 3CL Amount Revenue 8,02,29,91,000 7,97,50,00,000 4,79,91,000 Expenditure Capital Expenditure 1,02,96,45,861 1,02,88,32,861 8,13,000 Total 9,05,26,36,861 9,00,38,32,861 4,88,04,000 Amount of 13,57,89,55,292 13,50,57,49,500 7,32,06,000 Deduction @150% 7.4 In this regard, she submitted that the total expenditure that is incurred by the Assessee is Rs. 9,05,26,36,861/-, however, as per form 3CL the deduction allowed to the Assessee is on the sum of Rs. 9,00,38,32,861/-. Therefore, the learned Assessing Officer has determined that the Assessee is not eligible for the weighted deduction under Section 35(2AB) of the Act on the balance amount of Rs. 4,88,04,000/-. She submitted that while the total revenue expenditure that was incurred on scientific research was Rs. 8,02,29,91,000/- however, DSIR certified only to the extent of Rs. 7,97,50,00,000/- and the balance amount of Rs. 4,79,91,000/- were not certified by the DSIR and eventually, this claim was disallowed by the learned Assessing Officer under Section 35{2AB) of the Act. In this regard, it humbly submitted that although said revenue expenditure was disallowed under Section 35(2AB) of the Act the said amount of Rs. 4,79,91,000/- should have been allowed under Section 37 of the Act as it was incurred for the purpose of business. In other words, the learned Assessing Officer should have restricted the disallowance to the amount of Rs.2,52,14,792/- (Rs. 7,32,06,000 - Rs. 4,79,91,000).

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 11 of 15 7.5 She submitted the computation given by the learned CIT along with the Assessee's is as under:

As per Assessee Particulars As per CIT (in Rs.) (in Rs.) Total eligible expenditure as per 9,00,38,32,861 9,05,26,36,861 150% claim u/s35(2AB) 13,50,57,49,291 13,50,57,49,500 Amount debited to P&L A/C 6,90,49,75,405 6,85,69,84,405 Additional deduction allowable u/s 6,60,07,73,886 6,64,87,65,095 35(2AB) Less: Additional deduction claimed 6,67,39,79,887 6,67,39,79,887 u/s 35(2AB) in the Schedule ESR Excess additional deduction claim u/s 7,32,06,000 2,52,14,792 35(2AB) now disallowed

7.6 She submitted that the learned Assessing Officer erroneously while calculating the disallowance under weighted deduction as per form 3CL considered the actual amount debited to the P&L account of Rs. 6,90,49,75,405/-, instead of Rs. 6,85,69,84,4057- as per Form 3CL This resulted in excess disallowance and the learned Assessing Officer failed to provide the deduction under Section 37(1) i.e. 100% of the amount of Rs. 4,79,91,000/-. The learned CIT(A) has wrongly considered the actual amount debited to the P&L account of Rs. 6,90,49,75,405/- from the schedule ESR of ITR and the extract of the ITR.

7.7. She reiterated the fact that revenue expenditure on scientific research has been incurred by the Assessee for the purpose of business and this fact is not disputed by the learned Assessing Officer. Therefore, it is humbly submitted that the Assessee is entitled to the deduction of this amount under section 37 of the Act. The Assessee also draws the reference from the Hon'ble ITAT Bangalore in the case of M/s. BEML Limited Vs. DCIT [ITA No.222/Bang/2023]. She reproduced the relevant extract of the said judgement herein below :

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 12 of 15 "Admittedly, there was no dispute that the assessee has incurred capital expenditure of Rs.7.98 crores on scientific research which is entitled for weighted deduction u/s 35{2AB) of the Act and the balance amount of Rs.46.56 crores, which was revenue expenditure spent on scientific research. Out of this, assessee claimed only a sum of Rs.38.62 crores u/s 35(2AB) of the Act and the balance amount of Rs.7.94 crores cannot be claimed u/s 35(2AB) of the Act on the reason that it was not certified by DSIR. However, this expenditure of Rs.7.94 crores has been incurred by the assessee for the purpose of business and this fact is not disputed by the AO and in our opinion, assessee is entitled for deduction on this amount u/s 37 of the Act. This view of ours is fortified by the judgement of order of the Tribunal in the case of Auto Ignition Ltd. in ITA No.3248/Del/2017 dated 11.8.2021. 7.8 She submitted that the Bangalore ITAT in the aforesaid judgment relied on the decision of the Hon'ble ITAT Delhi in the case of Auto Ignition Ltd. in ITA No.3248/Del/2017 dated 11-08-2021. The relevant extract of this judgment is also reproduced herein below - "9. Coming to the appeal of the assessee, we found that out of total expenditure, incurred by the assessee of Rs.477.39 lakhs, form 3CL computed the deduction allowable to the assessee only on sum of Rs.468.98 lakhs. Therefore, admittedly the assessee is not eligible for weighted deduction on the sum ofRs. 8.41 lakhs. However, the assessee has been denied deduction on this sum u/s 37(1) of the Act itself also. We find that such R&D expenditure though not eligible for weighted deduction u/s 35(2AB) but is allowable as deduction u/s 37(1) of the Act to the extent of amount of expenditure incurred by the assessee. The assessee should have been allowed deduction of above sum as normal allowable expenditure u/s 37 (1) of the act. The Id CIT(A) did not deal with this aspect. In view of this, we direct the Id AO to allow the assessee deduction u/s 37(1) of the Act at a sum of Rs. 8.41 lakhs. Accordingly, appeal of the assessee is allowed." 7.9 In a nutshell, she submitted that the Assessee incurred a total expenditure of Rs. 9,05,26,36,861/-, out of which Form 3CL computed the deduction allowable only on the sum of Rs. 9,00,38,32,861/-. The disputed amount of Rs. 4,88,04,000/-, although ineligible for weighted deduction under section 35(2AB), was unequivocally incurred for the purpose of business. Based on the judicial pronouncements where it was ruled that such research and development expenditure, though not eligible for the weighted deduction, is allowable as a deduction under section 37(1) of the Act, we submit that the Assessee should.be entitled to a deduction on this amount and the disallowance should restrict to Rs. 2,52,14,792/- (Rs. 7,32,06,000 - Rs. 4,79,91,000).

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 13 of 15 7.10 In light of the above, she submitted that it is evident that the disallowance of expenditure under section 35(2AB) of the Act was procedurally incorrect and outside the intended scope of the scrutiny assessment. Therefore, we earnestly request the deletion of the addition made on this account. We emphasize adherence to the principles of a fair and focused assessment, limiting the scrutiny to the initially identified matters. Deleting the disallowed amount would not only align with proper assessment procedures but also uphold the principles of justice and procedural fairness, Further, the Assessee humbly prays your learned Authority for the deletion of the addition made, affirming the Assessee's rightful claim for deduction under section 37(1) of the Act for the disputed amount of Rs. 4,79,91,000/-. 8. The ld. D.R. relied on the order of lower authorities 9. We have heard the rival submissions and perused the materials available on record. Similar issue came for consideration before this Tribunal in assessee’s own case in ITA No.222/Bang/2023 dated 19.7.2023, wherein the Tribunal decided as follows: “6. We have heard the rival submissions and perused the materials available on record. Admittedly, there was no dispute that the assessee has incurred capital expenditure of Rs.7.98 crores on scientific research which is entitled for weighted deduction u/s 35(2AB) of the Act and the balance amount of Rs.46.56 crores, which was revenue expenditure spent on scientific research. Out of this, assessee claimed only a sum of Rs.38.62 crores u/s 35(2AB) of the Act and the balance amount of Rs.7.94 crores cannot be claimed u/s 35(2AB) of the Act on the reason that it was not certified by DSIR. However, this expenditure of Rs.7.94 crores has been incurred by the assessee for the purpose of business and this fact is not disputed by the AO and in our opinion, assessee is entitled for deduction on this amount u/s 37 of the Act. This view of ours is fortified by the judgement of order of the Tribunal in the case of Auto Ignition Ltd. in ITA No.3248/Del/2017 dated 11.8.2021 wherein held as under: “9. Coming to the appeal of the assessee, we found that out of total expenditure incurred by the assessee of Rs.477.39 lakhs, form 3CL computed the deduction allowable to the assessee only on sum of Rs.468.98 lakhs. Therefore, admittedly the assessee is not eligible for weighted deduction on the sum of Rs. 8.41 lakhs. However, the assessee has been denied deduction on this sum u/s 37(1) of the Act itself also.

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 14 of 15 We find that such R&D expenditure though not eligible for weighted deduction u/s 35(2AB) but is allowable as deduction u/s 37(1) of the Act to the extent of amount of expenditure incurred by the assessee. The assessee should have been allowed deduction of above sum as normal allowable expenditure u/s 37 (1) of the act. The Id CIT(A) did not deal with this aspect. In view of this, we direct the Id AO to allow the assessee deduction u/s 37(1) of the Act at a sum of Rs. 8.41 lakhs. Accordingly, appeal of the assessee is allowed.” 6.1 In view of the above discussion, we dismiss this ground of appeal of the revenue.”

9.1 Before us, ld. D.R. drew our attention to para 6.3.5 of CIT(A) order which reads as follows: “6.3.5 It is seen that the appellant has a point that the amount debited to P&L A/c (i.e. the 100% revenue expenditure) has to be considered in calculation of what is additional deduction u/s 35(2AB) and the only difference in such amounts have to be considered. But, the appellant is wrong in calculating the 150% eligibility claim without consideration of Form 3CL limit of eligible expenditure. Therefore, the calculation stands as under:- Total eligible expenditure as per the appellant --Rs.905,26,36,861/- Limited to the Form 3CL eligible expenditure – Rs.900,38,32,861/-(A) 150% claim u/s 35(2AB)(150% of (A)) – Rs.1350,57,49,292/- Less:- Amount debited to P&L A/c – Rs.690,49,75,405/- Additional deduction allowable u/s 35(2AB) – Rs.660,07,73,887/-(B) Less: Additional deduction claimed u/s 35(2AB) in the Schedule ESR – Deduction under section 35 or 35CCC or 35CCD – Rs.667,39,79,887/- (C) Excess additional deduction claim u/s 35(2AB) now disallowed (B) – (C) – Rs.7,323,06,000/-“

She submitted that if there is any error in calculation u/s 35(2AB) of the Act, same to be corrected. In view of this argument of ld. D.R., we make it clear that if there is any wrong calculation of the claim u/s 35(2AB) of the Act, same to be corrected while passing the giving effect order by ld. AO. Accordingly, these grounds of appeal of the assessee are partly allowed.

ITA No.1067/Bang/2023 Bharat Electronics Limited, Bangalore Page 15 of 15

Order pronounced in the open court on 8th Feb, 2024

Sd/- Sd/- (George George K.) (Chandra Poojari) Vice President Accountant Member Bangalore, Dated 8th Feb, 2024. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.