DCIT-2(3)(1), Mumbai V. NAVIN FLUORINE INTERNATIONAL LTD, MUMBAI

ITA 9/MUM/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1812 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2024
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 29-05-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 31-12-2023
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Retrospective amendment; Revised return; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 14A; 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI RAJ KUMAR CHAUHAN (JUDICIAL MEMBER) ITA No. 9/MUM/2024 Assessment Year: 2016-17 DCIT-2(3)(1), 552, Aayakar Bhavan, M.K. Road, Churchgate, Mumbai-400020. Vs. Navin Fluorine International Ltd., Office No. 602, Natraj by Rustomjee, Sir Mathuradas Vansanji Road, Andheri East, Mumbai-400069. PAN NO. AABCP 0464 B Appellant Respondent Assessee by : Ms. Arati Vissanji, Mr. Aamod Prabhudesai Revenue by : Mr. Ashok Kumar Ambastha, Sr. DR Date of Hearing : 30/05/2024 Date of pronouncement : 04/06/2024 ORDER PER OM PRAKASH KANT, AM 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: 1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed that the interest cost and other expenses have no co the tax free investment?" 2. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that preference capable of earning dividend income electing from year 31.03.2014 which will yield tax free income hence preference shares arc also to be included in working out average value of investment for the purpose of computing disallowance u/s.14A?" 3. "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 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 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 established by the assessee to prove that own funds were utilised to made the investment?" 4. "Whether on the facts and circumsta 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. explanation to Section 14A has been inserted which provides for applicability of the said income, which being clarificatory in nature has retrospective effect." 5. "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) where the AO investments for computing the disallowance of Rs. 37,09,000/ view of the above fact that the assessee earned exempt income of Rs. 1,99,12,077/ confirmed by the Ld 6. "The Ld. CIT(A) has erred in deleting the addition made on account of ESOP deduction without appreciating the fact that the company has chosen to issue share under ESOP in less than the market value, hence, even if it is treated as expenditure, nature" 7. "The Ld. CIT(A) erred in allowing deduction u/s. 35(2AB) of scientific research expenditure on Form 3CL wherein fact the actual expenses incurred on scientific research byassessee is less than Form 3CL." 2. Briefly stated fact consideration, the assessee company was engaged in the business of manufacturing and trading Gases, Hydro Fluorine Navin Fluorine International Ltd "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that assessee failed to establish that the interest cost and other expenses have no co the tax free investment?" "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that preference shares would be capable of earning dividend income electing from year 31.03.2014 which will yield tax free income hence preference shares arc also to be included in working out average value of investment for the purpose of computing disallowance u/s.14A?" "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 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 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 established by the assessee to prove that own funds were utilised to made the investment?" "Whether on the facts and circumstance of the case and in law, the 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. explanation to Section 14A has been inserted which provides for applicability of the said section even in the absence of exempt income, which being clarificatory in nature has retrospective effect." "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) where the AO suo-moto had considered only Dividend yiclding investments for computing the disallowance of Rs. 37,09,000/ view of the above fact that the assessee earned exempt income of Rs. 1,99,12,077/- the disallowance by AO should have been confirmed by the Ld. CIT(A)." "The Ld. CIT(A) has erred in deleting the addition made on account of ESOP deduction without appreciating the fact that the company has chosen to issue share under ESOP in less than the market value, hence, even if it is treated as expenditure, then it is capital in nature" "The Ld. CIT(A) erred in allowing deduction u/s. 35(2AB) of scientific research expenditure on Form 3CL wherein fact the actual expenses incurred on scientific research byassessee is less than Form 3CL." Briefly stated facts of the case are that during the year under consideration, the assessee company was engaged in the business of manufacturing and trading of chemicals mainly Gases, Hydro Fluorine Acid and Fluoro Chemicals. For the year Navin Fluorine International Ltd 2 ITA No. 9/MUM/2024 "Whether on the facts and circumstances of the case and in law, to appreciate that assessee failed to establish that the interest cost and other expenses have no co-relation with "Whether on the facts and circumstances of the case and in law, shares would be capable of earning dividend income electing from year 31.03.2014 which will yield tax free income hence preference shares arc also to be included in working out average value of investment for 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 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 before 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 established by the assessee to prove that own funds were utilised nce of the case and in law, the 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. explanation to Section 14A has been inserted which provides for section even in the absence of exempt income, which being clarificatory in nature has retrospective effect." "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) moto had considered only Dividend yiclding investments for computing the disallowance of Rs. 37,09,000/-, In view of the above fact that the assessee earned exempt income of the disallowance by AO should have been "The Ld. CIT(A) has erred in deleting the addition made on account of ESOP deduction without appreciating the fact that the company has chosen to issue share under ESOP in less than the market then it is capital in "The Ld. CIT(A) erred in allowing deduction u/s. 35(2AB) of scientific research expenditure on Form 3CL wherein fact the actual expenses incurred on scientific research byassessee is less than s of the case are that during the year under consideration, the assessee company was engaged in the business chemicals mainly, Refrigerant and Fluoro Chemicals. For the year under consideration, th 28.11.2016 declaring total of income filed by the assessee was selected for scrutiny and statutory notices under the Income were issued and complied with. In the assessment completed u/s 143(3) of the Act on 21.12. additions and assessed total income at Rs.82,13,36,180/ book profit for the purpose of section 115JB of the Act was computed at Rs.1,15,99,97,311/ normal provisions of the Act u/s 115JB of the Act computed under the normal provisions of the Act. 3. On further appeal, the Ld. CIT(A) allowed assessee. Aggrieved, the Revenue is in way of raising grounds as reproduced above. 4. We have heard rival submission of the parties and perused the relevant material on record. 4.1 The ground Nos. 1 to 5 of the appeal are related to disallowance u/s 14A r.w.r. 8 short ‘the Rules’). Facts in brief qua the issue in dispute are that during the year under consideration, the assessee company earned total dividend income of Rs.5,07,43,917/ Navin Fluorine International Ltd under consideration, the assessee filed return of income on 28.11.2016 declaring total income of Rs.81,07,65,030/ of income filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 143(3) of the Act on 21.12.2018, the Assessing Officer made various additions and assessed total income at Rs.82,13,36,180/ book profit for the purpose of section 115JB of the Act was computed at Rs.1,15,99,97,311/-. Since, the tax payable as per normal provisions of the Act was being more than the tax computed u/s 115JB of the Act, the tax liability of the assessee under the normal provisions of the Act. On further appeal, the Ld. CIT(A) allowed part relief to the the Revenue is in appeal before the Tribunal by way of raising grounds as reproduced above. We have heard rival submission of the parties and perused the relevant material on record. ground Nos. 1 to 5 of the appeal are related to disallowance u/s 14A r.w.r. 8D of the Income-tax Rules, 1962 (in short ‘the Rules’). Facts in brief qua the issue in dispute are that during the year under consideration, the assessee company earned total dividend income of Rs.5,07,43,917/-, Navin Fluorine International Ltd 3 ITA No. 9/MUM/2024 e assessee filed return of income on of Rs.81,07,65,030/-. The return of income filed by the assessee was selected for scrutiny and tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment completed u/s 2018, the Assessing Officer made various additions and assessed total income at Rs.82,13,36,180/-. The book profit for the purpose of section 115JB of the Act was . Since, the tax payable as per being more than the tax computed the tax liability of the assessee was finally part relief to the appeal before the Tribunal by We have heard rival submission of the parties and perused the ground Nos. 1 to 5 of the appeal are related to tax Rules, 1962 (in short ‘the Rules’). Facts in brief qua the issue in dispute are that during the year under consideration, the assessee company earned out of which Rs.1,99,12,077/- was claimed a suo-motu disallowance was made by the assessee Officer issued show cause to the assessee as why the disallowance u/s 14A of the Act should not be made in accordance with provisions of Rule 8D. After consideri assessee, the Assessing Officer made disallowance under Rule 8D(2)(ii) at Rs.25,17,000/ Rs.37,09,000/-, thus, Rs.62,84,000/-. The Assessing Offic in the book profit also 4.2 On further appeal Rs.25,17,000/- under Rule 8D(2)(ii), the assessee submitted that assessee’s own fund exceed and hence following the decision Hon’ble Supreme Court in the case of South India Bank Ltd. v. CIT [2021] 130 tamann.com 178 is assumption that investment are made from the own funds if the own funds exceed the value of the 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 ordinate Bench of the Tribunal has decided the matter in favour of the assessee for assessment year 4.3 Similarly, regarding the disallowance of Rs.37,09,000/ Rule 8D(2)(iii), the assessee submitted that for quantifying Navin Fluorine International Ltd was claimed as exempt dividend income. disallowance was made by the assessee. The Assessing Officer issued show cause to the assessee as why the disallowance u/s 14A of the Act should not be made in accordance with provisions of Rule 8D. After considering the submission of the assessee, the Assessing Officer made disallowance under Rule 8D(2)(ii) at Rs.25,17,000/- and disallowance under Rule 8D(2)(iii) at , thus, the total disallowance u/s 14A . The Assessing Officer made corresponding increase in the book profit also for said disallowance u/s 14A of the Act. On further appeal, regarding the disallowance of under Rule 8D(2)(ii), the assessee submitted that assessee’s own fund exceeded the value of investement in shares , following the decision Hon’ble Supreme Court in the case of South India Bank Ltd. v. CIT [2021] 130 tamann.com 178 is assumption that investment are made from the own funds if the own funds exceed the value of the investment and hence no 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 ordinate Bench of the Tribunal has decided the matter in favour of the assessee for assessment years 2007-08 to 2011-12. Similarly, regarding the disallowance of Rs.37,09,000/ Rule 8D(2)(iii), the assessee submitted that for quantifying Navin Fluorine International Ltd 4 ITA No. 9/MUM/2024 s exempt dividend income. But no . The Assessing Officer issued show cause to the assessee as why the disallowance u/s 14A of the Act should not be made in accordance with ng the submission of the assessee, the Assessing Officer made disallowance under Rule and disallowance under Rule 8D(2)(iii) at the total disallowance u/s 14A was made at er made corresponding increase said disallowance u/s 14A of the Act. regarding the disallowance of under Rule 8D(2)(ii), the assessee submitted that investement in shares , following the decision Hon’ble Supreme Court in the case of South India Bank Ltd. v. CIT [2021] 130 tamann.com 178, there is assumption that investment are made from the own funds if the investment and hence no 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- ordinate Bench of the Tribunal has decided the matter in favour of 12. Similarly, regarding the disallowance of Rs.37,09,000/- under Rule 8D(2)(iii), the assessee submitted that for quantifying investment only those investments should be considered on which dividend (exempt) income is earned during the the assessee submitted that disallowance should be restricted to Rs.20,44,000/- instead that the Co-ordinate Bench of the Tribunal for assessment years 2009-10 to 2012-13 has decided the matter assessee. After considering the submission of the assessee, the Ld. CIT(A) deleted the additions observing as under: “Ground No 1: Rs.37,09,000/- the Act. 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 2010-11 and 2011 authority are bei The appellant has sought relief in computing book wherein disallowance u/s 14A quantified by invoking rule 8D(2)(iii) was not considered by Ld. Special Bench the Delhi I Pvt. Ltd. (2017) 82 taxmann.com 415. The Ld. 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 judicial precedent. The additions made by the. Ld. AO are directed to be deleted. Ground no.1 is allowed. 4.4 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 concerned, it is general in nature. As far as the ground No. 2 of the appeal is concerned, the Ld. counsel for the assessee submitted that the assessee has made Navin Fluorine International Ltd investment only those investments should be considered on which dividend (exempt) income is earned during the year. Accordingly, the assessee submitted that disallowance should be restricted to stead of Rs.37,09,000/-. The assessee submitted ordinate Bench of the Tribunal for assessment years 13 has decided the matter in favour of the assessee. After considering the submission of the assessee, the Ld. CIT(A) deleted the additions observing as under: Ground No 1:- Pertains to addition of Rs.25,17,000/ - made by Ld. A.O. u/s 14A read with rules 8D(2)(i 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 11 and 2011-12 by Hon'ble ITAT. The orders of the higher judicial authority are being herewith followed. The appellant has sought relief in computing book profit u/s 115JB disallowance u/s 14A quantified by invoking rule 8D(2)(iii) was not considered by Ld. AO. The appellant has relied on the decision of Special Bench the Delhi ITAT in the matter of ACIT vs. Vireet Investment Pvt. Ltd. (2017) 82 taxmann.com 415. The Ld. AO is directed to allow 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 judicial precedent. The additions made by the. Ld. AO are directed to be deleted. Ground no.1 is allowed.” 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 it is general in nature. As far as the ground No. 2 of the appeal is concerned, the Ld. counsel for the assessee submitted that the assessee has made no investment in the preference shares Navin Fluorine International Ltd 5 ITA No. 9/MUM/2024 investment only those investments should be considered on which year. Accordingly, the assessee submitted that disallowance should be restricted to . The assessee submitted ordinate Bench of the Tribunal for assessment years in favour of the assessee. After considering the submission of the assessee, the Ld. Pertains to addition of Rs.25,17,000/- and made by Ld. A.O. u/s 14A read with rules 8D(2)(ii)&(iii) of 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 12 by Hon'ble ITAT. The orders of the higher judicial profit u/s 115JB disallowance u/s 14A quantified by invoking rule 8D(2)(iii) was AO. The appellant has relied on the decision of TAT in the matter of ACIT vs. Vireet Investment AO is directed to allow 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 The additions made by the. Ld. AO are directed to be deleted. Ground 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 it is general in nature. As far as the ground No. 2 of the appeal is concerned, the Ld. counsel for the assessee submitted preference shares and therefore, the issue of considering dividend income in the preference share for the purpose of working out the average investment u/s 14A of the Act controvert the factual submission of the assessee that no preference shares have been invested by the assessee. I ground No.2c raised by the Revenue is dismissed as infructuous. 4.5 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 issue in dispute and mere pendency of the appeal filed b Revenue before larger bench of the Revenue. Accordingly, said ground of appeal of the Revenue is dismissed. In ground No. 4 of the appeal, the Revenue has amendment made to section 14A of the Act 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 of Pr. CIT (Central) v. Era Infrastructure (India) Ltd. 448 ITR 674 held that amendment to sec 2022 by way of insertion of Explanation providing for applicability of the provisions of even in absence of the exempted income prospective in nature. dismissed. Navin Fluorine International Ltd issue of considering dividend income in the ference share for the purpose of working out the average investment u/s 14A of the Act does not arise. The Ld. DR could not controvert the factual submission of the assessee that no preference shares have been invested by the assessee. In view of the above raised by the Revenue is dismissed as infructuous. As far as the ground No. 3 raised on the issue in dispute is the Ld. CIT(A) has followed binding precedent on the issue in dispute and mere pendency of the appeal filed b Revenue before larger bench, the issue cannot be decided in favour of the Revenue. Accordingly, said ground of appeal of the Revenue In ground No. 4 of the appeal, the Revenue has made to section 14A of the Act for disallowance be restricted to the extent of the exempt income, is retrospective in we find that Hon’ble Delhi High Court in the case of Pr. CIT (Central) v. Era Infrastructure (India) Ltd. 448 ITR 674 held that amendment to section 14A of the Act by Finance Act, 2022 by way of insertion of Explanation providing for applicability of the provisions of even in absence of the exempted income prospective in nature. Accordingly, said ground of the Revenue is Navin Fluorine International Ltd 6 ITA No. 9/MUM/2024 issue of considering dividend income in the ference share for the purpose of working out the average . The Ld. DR could not controvert the factual submission of the assessee that no preference n view of the above, the raised by the Revenue is dismissed as infructuous. As far as the ground No. 3 raised on the issue in dispute is the Ld. CIT(A) has followed binding precedent on the issue in dispute and mere pendency of the appeal filed by the he issue cannot be decided in favour of the Revenue. Accordingly, said ground of appeal of the Revenue In ground No. 4 of the appeal, the Revenue has submitted that disallowance not to be restricted to the extent of the exempt income, is retrospective in we find that Hon’ble Delhi High Court in the case of Pr. CIT (Central) v. Era Infrastructure (India) Ltd. 448 ITR 674 tion 14A of the Act by Finance Act, 2022 by way of insertion of Explanation providing for applicability of the provisions of even in absence of the exempted income, is Accordingly, said ground of the Revenue is 4.6 In ground No. 5, the Revenue has raised the issue that Assessing Officer himself has only considered the dividend yielding assets for computing disallowance of Rs.37,09,000/ 8D(2)(iii) of Rules. Before the Ld. CIT(A) that while computing disallowance under rule 8D(2)(iii) , only dividend yielding assets should be taken. The assessee computed disallowance accordingly and requested disallowance to the extent of Rs.20,44,000/ the Act. We are of opinion that in principle both parties are at same page and thus dispute only is of verification of computation, Accordingly, 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 ordinate Bench of the Tribunal in the case of the assessee for earlier years, the grounds of the appeal of the Revenue are adjudicated subject to the disallowance under Rule 8D(2)(iii) of the Rules restored back to the file of the Assessing Officer for the quantification of the average value of the investment from which exempted dividend income was earned during the year under consideration and with the direction to assessee of restricting the disallowance ground No. 5 of the appeal of the Revenue partly for statistical purposes. Navin Fluorine International Ltd nd No. 5, the Revenue has raised the issue that Assessing Officer himself has only considered the dividend yielding for computing disallowance of Rs.37,09,000/ . Before the Ld. CIT(A), the assessee submitted computing disallowance under rule 8D(2)(iii) , only dividend yielding assets should be taken. The assessee computed disallowance accordingly and requested for restricting the disallowance to the extent of Rs.20,44,000/- under Rule 8D(2)(iii) of We are of opinion that in principle both parties are at same page and thus dispute only is of verification of computation, this matter need verification at the end of the AO We find that the Ld. CIT(A) has followed the finding of the Co rdinate Bench of the Tribunal in the case of the assessee for earlier of the appeal of the Revenue are adjudicated subject to the disallowance under Rule 8D(2)(iii) of the Rules restored back to the file of the Assessing Officer for the quantification of the average value of the investment from which exempted dividend income was earned during the year under with the direction to examine the claim of the assessee of restricting the disallowance to Rs.24,44,000/ 5 of the appeal of the Revenue is accordingly allowed partly for statistical purposes. Navin Fluorine International Ltd 7 ITA No. 9/MUM/2024 nd No. 5, the Revenue has raised the issue that Assessing Officer himself has only considered the dividend yielding for computing disallowance of Rs.37,09,000/- under Rule the assessee submitted computing disallowance under rule 8D(2)(iii) , only dividend yielding assets should be taken. The assessee computed for restricting the under Rule 8D(2)(iii) of We are of opinion that in principle both parties are at same page and thus dispute only is of verification of computation, this matter need verification at the end of the AO. We find that the Ld. CIT(A) has followed the finding of the Co- rdinate Bench of the Tribunal in the case of the assessee for earlier of the appeal of the Revenue are adjudicated subject to the disallowance under Rule 8D(2)(iii) of the Rules, is restored back to the file of the Assessing Officer for verification of the quantification of the average value of the investment from which exempted dividend income was earned during the year under examine the claim of the 4,44,000/-. The accordingly allowed 4.8 The ground No. 6 of the appeal of the Revenue relates to ESOP deduction. According to the Revenue, the expenditure is in the nature of capital expenditure 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 Officer. The Ld. CIT(A) decided the claim of deduction of the assessee observing as under: “Ground No.4:- 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 was filed in the revised 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 citing the decision of Jurisdictional High Court in CIT vs. Prut & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and to meet end of justice, the additional ground is hereby admitted. 4.9 We have heard rival submission of relevant material on record. claim of the assessee providing opportunity of being heard to the Assessing Officer and without verification of interest of substantial justice, we restore this issue back to the file of the Assessing Officer factual verification of the claim of the assessee. The ground No. 6 of the appeal of the Revenue is accordingly allowed for statistical purposes. Navin Fluorine International Ltd The ground No. 6 of the appeal of the Revenue relates to ESOP deduction. According to the Revenue, the expenditure is in the expenditure. We find that this claim has been 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 Officer. The Ld. CIT(A) decided the claim of deduction of the bserving as under: - The appellant has contended that deduction u/s 37(1) of the Act may be allowed in respect of ESOP expenses of Rs. The above 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 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 citing the decision of Jurisdictional High Court in CIT vs. Prut & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and to meet end of justice, the additional ground is hereby admitted. We have heard rival submission of the parties and perused the relevant material on record. Since, the Ld. CIT(A) has allowed the claim of the assessee merely following the legal precedents , providing opportunity of being heard to the Assessing Officer and without verification of the claim of the assessee. Therefore, in the interest of substantial justice, we restore this issue back to the file of the Assessing Officer for deciding in accordance with law after factual verification of the claim of the assessee. The ground No. 6 of he appeal of the Revenue is accordingly allowed for statistical Navin Fluorine International Ltd 8 ITA No. 9/MUM/2024 The ground No. 6 of the appeal of the Revenue relates to ESOP deduction. According to the Revenue, the expenditure is in the . We find that this claim has been 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 Officer. The Ld. CIT(A) decided the claim of deduction of the The appellant has contended that deduction u/s 37(1) of the Act may be allowed in respect of ESOP expenses of Rs. The above ground was not allowed by the Ld. AO since no such claim return of income as per the decision of Hon'ble 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 citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and to meet end of justice, the additional ground is hereby admitted.” the parties and perused the Since, the Ld. CIT(A) has allowed the merely following the legal precedents , without providing opportunity of being heard to the Assessing Officer and the claim of the assessee. Therefore, in the interest of substantial justice, we restore this issue back to the file in accordance with law after factual verification of the claim of the assessee. The ground No. 6 of he appeal of the Revenue is accordingly allowed for statistical 4.10 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 is concerned, the Ld. CIT(A) admitted this a allowed the relief observing as under: “Ground No.3: 35(2AB) should be at gross expenditure and not at net expenditure thereby seeking an additional deduction of Rs.82,86,246/ The above 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 Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR 323 (SC). The appellant has taken this additional gr citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and to meet end of justic The appellant had claimed gross revenue expenditure of Rs. 1060.50 lakhs before the expenditure at Rs. 1019.07 lakhs as the amount eligible for weighted deduction u/s 35 expression "any expenditure" on scientific research on in house Kal as approved by the prescribed authority should only relate to the expenditure which has been incurred and not the net expenditure aft reducing income earned The appellant has cited the case of CIT vs. Micro Lab Ltd. (2016) 383 ITR 490 (Kar) to support his contentions. Since, the legal issue on similar facts has been decided by higher judicial authorities, the ground of appeal no.3 is 4.11 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 lakhs i.e. the amount Scientific and Industrial Research (DSIR) in against claim of Rs.5 accordingly, the Assessing Officer made disallowance of Rs.11,45,000/-. However, before the Ld. CIT(A) the assessee made Navin Fluorine International Ltd 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 the Ld. CIT(A) admitted this additional ground and allowed the relief observing as under: Ground No.3:- The appellant has contended that deduction u/s 35(2AB) should be at gross expenditure and not at net expenditure thereby seeking an additional deduction of Rs.82,86,246/-. 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 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 citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and to meet end of justice, the additional ground is hereby admitted. The appellant had claimed gross revenue expenditure of Rs. 1060.50 lakhs before the DSIR. However, it was granted net revenue expenditure at Rs. 1019.07 lakhs as the amount eligible for weighted deduction u/s 35(2AB) of the Act. The appellant has contented that the expression "any expenditure" on scientific research on in house Kal as approved by the prescribed authority should only relate to the expenditure which has been incurred and not the net expenditure aft reducing income earned The appellant has cited the case of CIT vs. Micro Lab Ltd. (2016) 383 ITR 490 (Kar) to support his contentions. Since, the legal issue on similar facts has been decided by higher judicial authorities, the ground of appeal no.3 is allowed.” 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 i.e. the amount which was approved by the Department of Scientific and Industrial Research (DSIR) in Form No. 3CL Rs.506.82 lakhs made by the assessee and accordingly, the Assessing Officer made disallowance of . However, before the Ld. CIT(A) the assessee made Navin Fluorine International Ltd 9 ITA No. 9/MUM/2024 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 dditional ground and The appellant has contended that deduction u/s 35(2AB) should be at gross expenditure and not at net expenditure 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 Supreme court in the matter of Goetz (India) Ltd. Vs. CIT (2006) 284 ITR ound in his appeal citing the decision of Jurisdictional High Court in CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). In view of the Judicial precedent cited by the appellant, legal nature of the ground and e, the additional ground is hereby admitted. The appellant had claimed gross revenue expenditure of Rs. 1060.50 DSIR. However, it was granted net revenue expenditure at Rs. 1019.07 lakhs as the amount eligible for weighted (2AB) of the Act. The appellant has contented that the expression "any expenditure" on scientific research on in house Kal as approved by the prescribed authority should only relate to the expenditure which has been incurred and not the net expenditure after reducing income earned The appellant has cited the case of CIT vs. Micro Lab Ltd. (2016) 383 ITR 490 (Kar) to support his contentions. Since, the legal issue on similar facts has been decided by higher 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 which was approved by the Department of Form No. 3CL, as 6.82 lakhs made by the assessee and accordingly, the Assessing Officer made disallowance of . However, before the Ld. CIT(A) the assessee made claim for allowing deduction on the gross expenditure of Rs. lakhs instead of net expenditure 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 decision the Hon’ble Karnataka High Court has to the lower authorities for verification. The relevant finding of the Hon’ble Court is reproduced as under: “18. As we have already seen, these receipts are credited to profit and loss accounts are part of normal sales. They are, there reduced from the expenditure incurred by the assessee on carrying out 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 No. 2 raised by the Revenu Commissioner of Income 154 of the Act cannot be sustained and the same is hereby reversed. Thus, I.T.A. No. 764/B/14 by the assessee is allowed, while ground No. 2 raised by the Revenue is dismissed." 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 reduced from the expenditure for the purpose of allowing the deduction under Section 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 R&D centre is not required to be reduced from the expend purpose of deduction under Section 35(2AB) of the Act. 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 below and therefore to that extent this aspect requ verification and examination. Accordingly, we set aside this issue to the 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 centre and then allow the cla observations and findings. 4.12 Accordingly, following the finding of the Hon’ble Court the matter in the instant case is also restored to the file of the Assessing Officer for proper verification of the co Navin Fluorine International Ltd deduction on the gross expenditure of Rs. lakhs instead of net expenditure of Rs. 1019.07 lakhs 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 decision the Hon’ble Karnataka High Court has restored the matter to the lower authorities for verification. The relevant finding of the Hon’ble Court is reproduced as under: 18. As we have already seen, these receipts are credited to profit and loss accounts are part of normal sales. They are, therefore, not to be reduced from the expenditure incurred by the assessee on carrying out 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 No. 2 raised by the Revenue and that the order passed by the Commissioner of Income-tax (Appeals) dated April 9, 2014 under section 154 of the Act cannot be sustained and the same is hereby reversed. Thus, I.T.A. No. 764/B/14 by the assessee is allowed, while ground No. the Revenue is dismissed." 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 reduced from the expenditure for the purpose of allowing the deduction 35(2AB) because the said income is part of the total 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 R&D centre is not required to be reduced from the expend purpose of deduction under Section 35(2AB) of the Act. 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 below and therefore to that extent this aspect requires a proper verification and examination. Accordingly, we set aside this issue to the 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 centre and then allow the claim of the assessee in view of the above observations and findings.” Accordingly, following the finding of the Hon’ble Court matter in the instant case is also restored to the file of the Assessing Officer for proper verification of the contract income and Navin Fluorine International Ltd 10 ITA No. 9/MUM/2024 deduction on the gross expenditure of Rs.1060.50 of Rs. 1019.07 lakhs. The Ld. 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 restored the matter to the lower authorities for verification. The relevant finding of the 18. As we have already seen, these receipts are credited to profit and fore, not to be reduced from the expenditure incurred by the assessee on carrying out 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 e and that the order passed by the tax (Appeals) dated April 9, 2014 under section 154 of the Act cannot be sustained and the same is hereby reversed. Thus, I.T.A. No. 764/B/14 by the assessee is allowed, while ground No. 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 reduced from the expenditure for the purpose of allowing the deduction 35(2AB) because the said income is part of the total 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 R&D centre is not required to be reduced from the expenditure for the 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 ires a proper verification and examination. Accordingly, we set aside this issue to the 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 im of the assessee in view of the above Accordingly, following the finding of the Hon’ble Court(supra), matter in the instant case is also restored to the file of the ntract income and expenditure incurred and accordance with law. The ground No. 7 of the appeal is accordingly allowed for statistical purposes. 5. In the result, the appeal of the Revenue is allowed partly for statistical purposes. Order pronounced in the open Court on Sd/- (RAJ KUMAR CHAUHAN JUDICIAL MEMBER Mumbai; Dated: 04/06/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Navin Fluorine International Ltd expenditure incurred and thereafter, allow the deduction in accordance with law. The ground No. 7 of the appeal is accordingly allowed for statistical purposes. In the result, the appeal of the Revenue is allowed partly for nounced in the open Court on 04/0 - Sd/ (RAJ KUMAR CHAUHAN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Navin Fluorine International Ltd 11 ITA No. 9/MUM/2024 allow the deduction in accordance with law. The ground No. 7 of the appeal is accordingly In the result, the appeal of the Revenue is allowed partly for /06/2024. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai