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Judgment
Per Satbeer Singh Godara, Judicial Member:
The instant batch of four cases i.e. the assessee’s and the Revenue’s cro ss appeals ITA No s. 2686 & 2842/Del/2022 (A.Y. 2016-17) alo ngwith the former twin cases ITA Nos. 2687 & 2688/Del/2022 (A.Ys. 2018-19 & 2019-20) arise against the CIT(A)-27, New Delhi’s orders dated 16 .09.2022 in case Nos. CIT(A), Delhi-6/10522/2019-20, CIT(A), Delhi-27/10409/2017-18 and Delhi-27/10824/2018-1 9, in proceedings u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in sho rt “the Act”), respectively.
Heard bo th the parties at length. Case file s perused. We proceed assessment year wise for the sake of co nvenience and brevity.
A.Y. 2016-17
ITA Nos. 2686 & 2842/Del/2022, assessee’s and the Revenue’s cross appeals
A combined perusal of both these assessee’s and the Revneue’s cross appeals indicates that the former has pleaded it’s substantive grounds inter alia challenging validity of reopening as well as claiming section 35(2AB) deduction of Rs.2,12,50,158/-; disallowed to the extent of Rs.1,77,08,389/-in assessment order dated 31.12.2019 as enhance d to Rs.2,12,50,158/- in the lower appellate discussion.
The Revenue on the other hand also raises its as many substantive grounds that the learned CIT(A) has erred in law and on facts in reversing the Assessing O fficer’s action disallowing the assessee’s alleged excessive manufacturing expe nses of Rs.23,00,93,853/- and R&D expenses of Rs.10 ,74,07,000; respe ctively.
A few relevant facts may be discussed.
There is any hardly dispute between the parties that the assessee here in M/s Matrix Clothing Pvt. Ltd. is a company who had filed it’s return on 17.110.2016 declaring income of Rs.11 ,74,59,910/-. This followed it’s revised return dated 28.11.2017 as well reducing the above declar ed income to Rs.9,90,56,110/-. There is further no issue that the Asse ssing Officer thereafter framed his se ction 143(3) regular assessment on 30.12.2018 inter alia disallowing the asse ssee’s se ction 80JJAA deduction, interest on loans etc. which resulted in assessment of its total income to Rs.12,61,52,840/-.
Now comes the relevant issues between the parties. Learned departmental authorities appear to have carried out a section 133A survey at the assessee’s business premises on 27.03.2019. It was on the basis of so me alleged evidence(s) against the assessee that the lear ned Assessing Officer recorded his reasons to believe that its taxable income liable to be assessed had escaped assessment. We make it clear that he had recorded his twin reasons for setting into motion section 148 proceedings against the assessee i.e. exce ssive manufacturing expenses to the tune of 17%; of to tal receipts of Rs.46 .65 (in crores) and R&D e xpenses of Rs.10.74 (in crores); respectively. All this culminated in the lear ned Asse ssing Officer’s impugned/assessment framed in the assessee’s case on 31.12.2019 disallowing/adding manufacturing expenses, R&D expe nses, section 35(2AB) deduction and depreciation on assets related to R&D; involving varying sums, respectively. Needless to say, the learned CIT (A)’s impugned lower appellate order has granted part relief to the assessee except to the exte nt of enhancement of it’s section 35(2AB) deduction disallowance amounting to Rs.2,12,50,158/- (supra).
This is what leaves both the parties aggrieved w ho have filed their instant cross appeal before the tribunal.
We first of all advert to the assessee’s so le substantive ground on merits claiming section 35(2AB) deduction of Rs.2,12,50,158/-. It is noticed from a perusal of paragraphs 9 to 9.1.4 at pages 23 to 26 of the lower appellate discussion that he had followed the Dispute Resolution Panel (“ DRP”) directions in the succeeding assessment year 2017-18 upho lding the very disallowance against the assessee than having examined the issue on merits at length as contemplated u/s 250(6) of the Act. It is in this factual backdrop that we sought to ascertain the final status of the asse ssee’s corresponding substantive grounds in the said latter assessment year. We are informed that the earlier learne d co-ordinate bench order dated 01.12.2025 in it’s appeal ITA No. 760/Del/2022 has already held it eligible for the very relief; reading as under:
“15.Ground Nos. 3.8 to 3.11 raised by the asse ssee are challenging the confirmation o f disallowance of deductio n claimed by the assessee of R s.3,88,77,284/- u/s 35(2AB) of the Act.
16.We have he ard the rival submissions and pe rused the material available on record. During the year under conside ration, the assessee company claimed deduction u/s 35(2AB) o f the Act amounting to Rs. 3,88,77,284/- as expenses incurre d in Research and Develo pment (R&D). Notice u/s 142(1) o f the Act was issued to the assessee co mpany to fur nish the de tails of item-wise expenditure along with nature of expenses fo r claim ing deductio n on account o f R&D u/s 35(2AB) o f the Act. The assessee submitte d its reply vide letter date d 31.03.2021. On pe rusal o f the same, the ld. AO noticed that the assessee company has claimed their regular business expenditure such as expenses towards purchase of fabric and processing cost of Rs. 266.60 lakhs; employee cost of Rs. 103.49 lakhs; travelling and convenience cost o f R s. 11.31 lakhs to taling to Rs. 381.40 lakhs on account o f revenue expenditure . T he ld. A O o bser ved that it is not unde rstandable as to why the re gular business e xpe nditure could be treated as R&D expenditure. The ld. A O stated that the assessee failed to dischar ge its onus to prove that the claim of expenditure towards R& D was actually incurred towards R&D not towards any othe r activity. This was sought to be buttressed by the ld AR by stating that assessee had duly furnished its reply to the notice dated 15.04.2021 by providing break up of total expenditure incurred and claimed towards R& D activities. In addition the reto , the assessee also pro vided the following details:-
a. list of capi tal assets purchased during FY 2016-17 utilized in R&D activities
b. details o f capital e xpenditure appro ved by De partment of Scientific and Industrial Research (D SIR) fo r FY 2015-16;
c. copy o f invo ices depicting purchase of capital assets during FY 2016-17.
It was submitte d before the ld. AO that DSIR, which is a statuto ry autho rity, visited the premises of the assessee company fo r inspection and after duly conside ring the project documents and de tails of expenses submitted including capital expenditure , duly approved the R&D facilities of the assessee company. It was also submitted that DSIR had issued a certification in this regard approving R&D activities togethe r with the figure for expenditure incur red to wards R&D activities. On perusal o f the Form 3CL enclosed in pages 292 to 293 o f the pape r book , we find that the DSIR had cer tifie d the R& D expenditure e ligible for deduction u/s 35 ( 2AB) o f the Act to the extent of Rs. 384.88 lakhs. T he Charte red Accountant had issued a certificate enclosed in pages 285 to 286 o f the Pape r Book certifying the expenditure fo r Rs. 387.37 lak hs. In our conside red opinio n, once a certificate has been issued by DSIR duly ce rtifying the figure s eligible fo r deduction u/s 35(2AB) of the Act, the l d A O again cannot go beyond the said c ertificate . This issue is no lo nger res integra in view o f the decision of the Hon’ble Karnataka High Court in the case of Tejas Network Ltd Vs. DCIT reported in 60 taxmann.co m 309 (Kar-HC) wherei n it was observed as under:-
“18.A plain reading of section 35(2AB)(1) would indicate that where a co mpany is engaged in the business of biotechno logy or any business of m anufacture or pro duction of any ar ticle or thing, no t being an article or thing specified in the list of the Eleve nth Schedule incurs any expenditure on "Scientific Research" (not being expenditure in the nature of cost of any land or building) o n in-ho use , rese arch and develo pment fac ility "as approve d by the prescribe d authority," such assessee would be entitle d to a deduction o f a sum equal to o ne and half times of the expenditure so incurre d. The wor d "Scie ntific Rese arch" has been define d under subsect ion (4) of Sectio n 43 o f the Act, which is extracte d supra and same wo uld indicate e xpe nditure incurre d in such scientific research includes all e xpenditure incurre d for the prosecution o r the provisio n of facilities for the prosecution of such scientific research. Howe ver , it does not include expenditure incurred in the acquisitio n of rights in o r arising out of scientific research. Such e xpe nditure incurre d should be appro ved by the authority prescribe d under Section 35(2AB) of the Act read with Rules fr amed thereunde r. The authority prescribe d to grant such appro val under Rule 6(1B) of the Income Tax Rules, 1961 is the Secretary, Depar tment of Scientific and Industrial Res earch.
19.A perusal of the above r ule wo uld cle arly indicate that the section (1) of Section 35(2AB) is the Secretary, Department of Scientific and Industrial Research (3) of the Section 35(2AB) would indic ate that no company would be entitle d fo r deduction unde r clause (1) unless it enters into an agreement with the prescribed authority for co-operaid authority in required to deve lopment facility and for audit of accounts maintained for that facility. Said authority is required to exam ine the applicatio n and if satisfied that conditio ns provided under Sectio n 35(2AB) are satisfied would pas s an or der in wr iting in Form No. 3CM . In the event o f such application o f assessee is be ing rejected by the prescribed autho rity, an opportunity o f be ing hear d would be exte nded by the prescribed authority to the assessee. As per sub-sectio n ( 4) of Section 35(2AB) the prescribed author ity would in tur n submit its repo rt to the approval o f the said facility to the Directo r General (I ncome tax Exemptions) in Form No. 3CL. within 60 days as per Rule 7(A)(b) of the R ules. Approval o f such expe nditure incurre d by a sectio n 35(2AB) would be subject to conditions stipulate d in clauses (a) to ( d) o f Rule 7A of the Rule s. This would cle arly indicate that the pre scribed authority after receiving the applicatio n unde r Rule 3CR would examine the said application in the backgro und o f the definitio n fo und in sub-section ( 4) o f Section 43 and on being satisfie d that such application satisfie s the criteria prescribed unde r the Act, then alone it woul d issue the certificate by granting its approval to the e xpenditure incurred by a company. To put it differently, prescribed authority is the autho rity under the Act which wo uld examine the claim for grant of appro val under Sectio n 35(2AB), Pursuant to such application filed by assessee to the prescr ibe d autho rity, a report wo uld be submitted by the prescribed authority to the Director General (Income tax Exemptions) in Form No. 3CL, in order to entitle the assessee to weighted deduction and such repor t by the prescribed authority would be forwarded to Dire ctor General (Income tax Exemptions) within 60 days from order of appr oval. T his order in Form No. 3CM wo uld be passed by the pre scribed author ity only after being satisfie d that the co nditions provide d in Rule s (7A) and in sub-section (2AB) of Section 35 of the Act are fulfille d. F acts o n hand would cle arly indicate that appl ication had bee n filed by assessee on 07.01.2009 and after calling for documents/ inform ation from assessee and on examination and scrutiny of such documents/ information furnished by assessee, Orde r of approval came to be granted in favour of assessee on 18.11.2009 in Form No. 3CM vide Annexure-G.
20.It would be apt to po int at this j uncture itself that in the event o f any question would ar ise before the assessing officer under Section 35 as to whether amounts cer tified by the prescr ibe d autho rity is e ligible for being allo wed as expenditure and to what extent and whether such activity constitutes or constituted., or any asset is or was being used for scientific research in that regard, then assessing officer has to request the Bo ard to refer such question to the prescribed authority as provided unde r clause (b) of Section 35(3) . In other words, the correctness or o therwise of the o rder passed by the prescribed autho rity is not examine d by the assessing office r or by the Inco me Tax Authority and this exercise is outsourced by the Inco me Tax Department and same is being done by the prescribe d authority namely, Department o f Scientific and Industrial Research. T his is the plain meaning whic h can be deciphere d from the perusal of above said statuto ry pro visions. 21. Thus, reading of Section 35 (3) of the Act would clearly indicate that where the assessing office r does not accept the claim o f the assessee made under Section 35(2AB) , he has to re fer the matter to the Bo ard, which inturn, will refer the question to the prescribe authority. The decision of the prescribed autho rity would be final as could be see n from clause ( b) of sub- section (3) of Section 35. Thus, it would emerge from abo ve analysis that neithe r the assessing officer nor the Bo ard is competent to take any decision on any such contro ve rsy re lating to re port and appro val granted by "Prescribed A utho rity" as it involves expert view or opinion. The co ntroversy arising o ut of certificate issued by the prescribe d author ity if any, has to be refe rre d to the prescribed autho rity by the Board on such do ubt being raised by Assessing Officer and also on his re quest. It is the prescribed authority along which wo uld be competent to take a decision with regar d to co rrectness or otherwise of its order of approval grante d in Form No. 3CL as prescribe d under Sectio n 35(2AB) of the Act read with Rule 7A of the Rules.” (emphasis supplie d by us)
17.In the e vent of ld. AO not agreeing with the certificate of DSIR, then the ld. AO should fo llo w the procedure provided in Section 35(3) of the A ct. In the instant case, no such process/ procedure was followed by the ld. AO . Hence , he would be left with no other option but to accept the figure certified by DSIR and grant deduction to the assessee u/s 35(2AB) of the Act. In vie w of the aforesaid o bservations and respectfully following the afo resaid judicial precedent, the Ground Nos. 3.8 to 3.11 raised by the assesseeare hereby allowed.”
That being the case, we conclude that there is hardly any fresh reasoning available to the department to justify the impugned section 35(2AB) de duction disallowance. We thus adopt judicial consiste ncy to de lete the same in the asse ssee’s favour and against the Revenue in very terms.
Now comes the Revenue’s twin substantive grounds of the alleged excessive manufacturing expenses, R& D expenditure disallowance made by the Assessing Officer and deleted in the learned CIT(A)’s lower appellate discussion; reading as under:
“7.Ground No. 3 relates to disallowance o f Rs 23,00,93,853 on account of disparity in the ratio of Manufacturing Expense to Tur nove r when compared to the Per iod 1st Apr il 18 thru 27th March 19.
7.1This addition has been made o n estimation basis by applying the r atio of Manufacturing Expense to Turno ver when compared to the Period 1st April 18 to 27th March 19 to the whole AY 2016- 17.
7.2Similar action was also take n fo r AY 2014- 15 &. 2015-16 and no tices u/s 148 we re issued.
7.3The appe llant filed the WP No. 13418/2019 and 13495/2019 chal lenging the reopening of cases u/s 148 of the IT Act in Hon’ble De lhi High C ourt.
7.4Hon’ble De lhi High Court while staying the abo ve proceeding u/s 148 observed that "Prima facie, we find merit: in. the submission of the Petitio ner that the aforesaid reaso ning cannot justify the reopening of the proceedings."
7.5Now in case of the AY 2016-17, the arguments of the appellant are as unde r:
"A table has been prepare d base d on Audited Financials of Financial Year 2015-16, 2016- 17, 2017-18 and 2018-19 (Survey Year) giving details of Manufacturing Expe nses and computing the ratio of Manufacturing Expe nses to Turno ver in both the years. The chart is as under:
s N o . H e a d o f A c c o u n t F Y 2 0 1 5 - 1 6 F Y 2 0 1 6 - 1 7 F Y 2 0 1 7 - 1 8 F Y 2 0 1 8 - 1 9 R s i n l a c s R s i n l a c s R s i n l a c s R s i n l a c s A M a n u f a c t u r i n g E x p e n s e s 1 D y e i n g & P r i n t i n g E x p 1 , 7 8 6 . 5 7 1 , 9 6 6 . 6 7 2 , 0 0 8 . 4 0 2 , 5 0 8 . 3 7 2 F a b r i c a t i o n E x p 5 8 7 . 1 0 8 5 8 . 6 8 7 2 4 . 0 0 9 5 2 . 8 7 3 E m b r o i d e r y E x p 3 9 4 . 8 1 5 9 5 . 0 3 5 2 9 . 1 1 5 0 5 . 2 0 4 W a s h i n g & F i n i s h i n g E x p 4 1 3 . 4 9 4 5 3 . 4 2 4 4 0 . 5 0 8 2 5 . 1 3 5 T e s t i n g E x p 1 4 9 . 5 5 1 7 3 . 8 0 1 4 1 . 8 5 2 2 4 . 3 7 6 J o b W o r k E x p 3 3 9 . 7 7 3 7 3 . 2 1 2 7 2 . 4 5 9 5 9 . 5 0 7 P o w e r & F u e l E x p 5 3 2 . 1 3 5 0 2 . 1 8 5 8 0 . 8 3 6 7 7 . 4 5 8 F r e i g h t C a r t a g e I n w a r d s 2 9 2 . 0 1 3 1 4 . 0 9 2 1 2 . 9 0 2 3 5 . 0 4 9 R e p a i r s & M a i n t e n a n c e B u i l d i n g 7 8 . 6 1 2 1 . 9 9 2 2 . 0 6 3 5 . 6 2 1 0 R e p a i r s & M a i n t e n a n c e P l a n t / M a c h i n e r y 1 6 6 . 6 1 1 7 0 . 7 6 1 6 1 . 9 6 1 9 7 . 5 1 1 1 T o t a l 4 , 7 4 0 . 6 5 5 , 4 2 9 . 8 3 5 , 0 9 4 . 0 7 7 , 1 2 1 . 0 5 B T u r n o v e r 2 7 , 5 5 6 . 1 5 3 1 , 4 0 9 . 2 0 2 8 , 6 5 2 . 3 1 3 8 , 2 1 9 . 4 6 C R a t i o t o T u r n o v e r 1 7 . 2 0 % 1 7 . 2 9 % 1 7 . 7 8 % 1 8 . 6 3 % As mentioned earlie r, the survey team came to a conclusion that the Manufacturing Expenses were 8.86% of Total Turnove r as pe r the P & L account take n o ut from the acco unting software Tally for the per iod 1st April 18 thru 27th March 19. The manufacturing expenses in the final accounts co nsist of items which are not reflected unde r Manufactur ing Expenses in Tally accounts but are reflected in o ther groupings in Tally and are o nly included in Manufacturing Expenses in the Final Accounts. C omparing the Manufacturing Expenses as per Tally P & L with the Manufacturing Expense as per F inal Accounts is therefore not correct.
The Assessment of the year of the surve y has bee n completed unde r section 143(3) witho ut any trading additions. Copy of the Assessment Order for the assessment Year 2019-20, 2018-19 and 2017- 18 are provide d here in above . The ratio of Manufacturing Expe nses to Turno ver as per the Audite d Financials and the Assessment Order is 17.20% for F inancial Ye ar 2015-16 as compared to 18.63% for Financial Year 2018-19 (Year of Surve y). The manufacturing Expenses are thus more in F inancial Year 2018-19 as compare d to Financial Year 2015-16 when co mpared to Gross Revenues. The learned Assessing O fficer had made the addition o n the premise that the Manufacturing Expe nses were far less in Financial Year 2018- 19 as compared to Financial Year 2015-16. This premise is prove d to be inco rrect.
It is thus evide nt that the basis of the additio n made by the Assessing Officer was based on presumptio ns of the survey team on 27th March 2019. Whereas the assessment of AY 2017- 18, 2018-19 and 2019-20 were done by the Assessing officer after thorough scrutinizing the findings of the survey and thoro ugh investigation and afte r being satisfied with the trading results for Financial Year 2018-19, passed an order u/s 143(3) without making any additions on account o f the excessive claim of Manufacturing e xpenses.
The basis o n which such addition was made by the Assessing Office r in Assessment Year 2016- 17 has thus been proved to be inco rrect The addition o f Rs 23,00,93,853 may the refo re be deleted."
7.6The conte ntio n of the appe llant is found to be correct. The Id. AO has not made any addition by applying the r atio of Manufacturing Expense to Turno ver when compared to the Period 1st April 18 to 27th March 19 to AY 2017-18, 2018- 19 & 2019-20. On the other hand, the reopening o n this bas is for AY 2014-15 & 2015-16 has bee n stayed by the Hon'ble Delhi High Court. Reo pening of AY 2016-17 was not stayed by the High Court because of the seco nd issue i.e . bo gus R& D expenses. I n any case, it does no t appear to be lo gical to apply the Sur vey findings of AY 2019-20 (date of survey 27.03.2019) to AY 2016-17 while same has not been applie d to the Survey year itse lf i.e . AY 2019- 20.
7.7In view of the abo ve discussion, the additio n of Rs. 23,00,93,853 on account of disparity in the ratio of Manufacturing Expense to Tur nove r when compared to the Period 1st April 18 thru 27th March 19 with the AY 2016-17 is hereby delete d and this ground of appe al is allo wed.
8.Ground No. 4 relates to an additio n of Rs 10,74,07,000 be ing re venue expe nses incurred by the assessee on carrying o ut its R & D activities.
8.1The relevant par t of the submissio n of the appellant is as unde r:
"In continuation with our submission vide le tter dated 28.6.2022, we would also like to bring to your knowle dge the fo llowing fact of the case about the Ground of A ppeal No.4 i.e., On disallowance of the expense of Rs. 10,74,07,000/-:
Your ho nour in the year unde r question the le arne d A O has disallowed the expense of Rs. 10,74,07,000 on the ground that no R &D work was found being done during the survey, therefore no related expenses or deductio ns can be allowed.
Whereas in the subseque nt Assessm ent ye ars namely AY 2017-18, 2018-19 and 2019- 20, the learne d Assessing Office r has allowed the ac tual expe nditure incurred o n R&D activities am ounting to Rs. 381.40 lacs, Rs. 926.09 lacs and Rs. 1010.61 l acs respectively on the ground that altho ugh it is clearly pro ved o n the basis of e ach par ameter mentio ned above that the R&D expenditure purpor tedly incur red by the assessee-company is nothing but a mere sham and a conduit to funne l money and claim a bogus higher de duction of expenditure. Therefore, the de duction claimed as Scientific Research & Deve lopment e xpenditure u/s 35( 2AB) of the Income Tax Act, 1961 in excess of the am ount de bited to the profit and loss account, amounting to Rs.3,88,77,284/ -, Rs. 4,65,48,203/- and Rs. 5,25,78,131/- res pectively is disallo wed and added back to the total income of the assessee-company.
To substantiate the above facts , we are enclosing co pies of the relevant orders passed u/s 143(3) of the Act by the le arne d AO as Anne xures 1, 2, and 3 for your perus al.
The above shows a clear contradiction in the stateme nt of learned AO.
In view o f the above-state d facts, the additio n of Rs. 10,74,07,000 may the refo re be deleted."
8.2The conte ntio n of the appe llant is found to be correct. The Id. AO has not made any addition by disallo wing the expenses incurred on claimed R &D activity though he has establishe d that there was no R&D activity taking place in the company as per the findings of the survey co nducted on 27.03.2019. He is of the opinion that though these expe nses have taken place but not towards R&D work and the refo re the appe llant is not eligible fo r deduction u/s 35( 2AB) o f the Act. By applying this logic, he had disallowe d the deduction claimed as Scientific Rese arch & De velo pment expenditure u/s 35(2AB) of the Income Tax Act, 1961 in excess o f the amount debited to the pro fit and l oss account, for AY, 2017-18, 2018- 19 and 2019- 20 amounting to Rs.3,88,77,284/-, Rs. 4,65,48,203/- and Rs. 5,25,78,131/- respectively and added back the same to the total income of the assessee -company. In o ther words, he has accepted that these expenditures have actually been incurred by the company but not towar ds R&D activity and the refo re only actual e xpenditure incurre d will be allowed.
8.3In view of the above discussion, the addition o f Rs 10,74,07,000 on account o f disallowance of reve nue expenses incurre d by the assessee is hereby de lete d and this ground o f appeal is allowed.”
The Revenue could hardly dispute that not only the impugned alleged manufactur ing expenditure vis-à-vis the assessee’s turnover formed subject matter of extrapo lation post-facto the above survey exercise only carr ied out in the year 2019 but also its stands concluded in the above extr acted lower appellate discussion that neither there is any abnormality in the foregoing ratio o f expenditure nor the latte r item o f R&D expe nditure had been disallowed under the normal provisions. These clinching findings have gone un-rebutted from the Revenue side. We thus uphold the learned CIT(A)’s de tailed discussion to reject the Reve nue’s instant tw in substantive ground as we ll as it’s cross appeal ITA No. 284 2/Del/2022 in very terms.
Learned senior counsel at this stage seeks to highlight the fact that the assessee has further sought to challenge validity of the impugned reopening as well. We wish to reiterate here that the learned Asse ssing Officer has set into motion is the same on the twin issues of alleged manufacturing and R&D expe nditure which stand de leted in the lo wer appellate proceedings (supra).
That being the case, we hereby quote ATS Infrastructure Ltd. Vs. ACIT (2024) 166 taxmann.com 61 (Del.), PCIT vs. Jakho tia Plastics (P.) L td. (2018) 94 taxmann.com 89 (De l.)and CIT(Exemption) vs. B.P. Poddar Foundation for Education (2023) 148 taxmann.com 125 (Cal.) & PCIT Vs. Naveen Infradevelopers and Engineers Pvt. Ltd. (2025) 479 ITR 463 (Del.) to conclude that once the above twin disallowance based on reopening reasons are hereby reversed in the CIT(A)’s order, the reopening itself forming subject matter of adjudication is itself not sustainable in law. Quashed in very terms.
The assessee succeeds in it’s appe al ITA No. 2686/Del/2022 therefore.
A.Y. 2018-19:
Assessee’s appeal ITA No. 2887/Del/2022
The assessee’s instant second appeal inter alia pleads four substantive grounds i.e. disallowance of R s.27,00,000/-representing interest paid to M/s Avail Financial Service s Pvt. Ltd., section 35(2AB) deduction of Rs.4,65,48,203/-, amo unt of Rs.17 ,17,115/- given to it’s JV company and amount of loss to the tune of Rs.4,70,000/- incurred on cyber crime security etc. respectively, made in both the lower proceedings. Learned senior counse l submits very fairly that the assessee no more wish to press for the foregoing last substantive ground keeping in mind smallness thereof. Reje cted in very terms subject to a rider that the same shall not be treated as a precedent.
We next notice that both the learned lower authorities have disallowed the assessee’s interest claim of R s.27,00,000/-paid to M/s Avail Financial Services Pvt. Ltd. for the sole reason that the corre sponding loans co ming fro m the very party stood added as unexplained cash credits in A.Y. 2017-18. Learned counsel has invited our attentio n to paragraph 10 to 14 therein (supr a) that this tribunal has already de leted the same against the department. We thus delete the impugned interest expe nditure disallowance involving the very entity therefore.
Coming to the assessee’s second substantive ground claiming se ction 35(2AB) deduction disallowance of Rs.4,65,48,203/-, we note that the learned CIT(A) has followed the DRP’s directions in A.Y. 2017-18 (supra) which already stands reversed. Deleted in very terms therefore.
Lastly comes the assessee’s third substantive ground claiming the amount in issue of Rs.17,17,115/- given to it’s JV entity(ies) as carrying commercial expediency Ms. Jha states very fairly that the tribunal’s earlier order(s) in assessment years 2014-15 and 2015-16 have already restored the same back to the Assessing Officer for his afresh factual verification on facts etc. We thus adopt judicial consistency to restore the assessee’s instant third substantive ground back to the Assessing Officer in very terms. The assessee’s instant appeal ITA No. 2687/Del/2022 is partly allowed.
A.Y. 2019-20
Assessee’s appeal ITA No. 2688/Del/2022
The assessee’s third and last appeal raises four substantive grounds directed against both the learned lower authorities re spective findings disallowing se ction 35 (2AB) deduction claim of Rs.5,25,78,131/-, Rs.1,66,000/- given to it’s JV entity, yet another sum of Rs.3,13,000/- and debit balance(s) right off amounting to Rs.13 ,52,897/- u/s 36(vii) of the Act; respectively.
There is hardly any dispute between the parties that the learned CIT(A) has followed the DRP’s findings in ITA No. 760/Del/2022 regarding the assessee’s section 35(2AB) deduction disallowance which already stand reversed in our prece ding detailed discussion. Deleted in very terms therefore.
So far as the assessee’s remaining third substantive ground are co ncerned, we make it clear that the same already stand restored back to the Assessing Officer in above preceding assessment years. The same are set aside to the Assessing Officer in very terms therefore. The assesse’ s instant last appeal ITA No . 2688/Del/2022 is partly allowed in above terms.
No other ground or argument has been pressed before us.
To sum up, the assessee’ s instant former appeal ITA No. 2686/Del/2022 is allowed its latter twin cases IT A Nos. 2687 & 2688/Del/2022 are partly allowed and the Revenue’s cross appeal ITA No. 2842/Del/2022 is dismissed; in above terms. A copy of this common order be placed in the respective case files.