Ind AS accounting entries cannot override tax provisions or trigger

Ind AS accounting entries cannot override tax provisions or trigger double taxation on income.

Issue

Whether book entries under Ind AS dictate taxability, leading to double taxation or improper disallowances under the Income-tax Act, and the validity of statutory claims regarding ICDS adjustments, TDR cost of acquisition, section 43B disallowances, gift expenses, and weighted scientific research deductions.

Facts

Ind AS vs. Tax Standards (ICDS IV & IX): The assessee made computation adjustments to align Ind AS entries with ICDS IV (notional rent) and ICDS IX (capitalized borrowing costs). The Assessing Officer (AO) disallowed these adjustments, alleging improper claims and double deduction.
Upfront Royalty Taxation: Assessee received an upfront royalty of ₹600 crore in A.Y. 2018-19 and offered the entire amount to tax. In A.Y. 2019-20, Ind AS required recognizing ₹40 crore in the Profit & Loss (P&L) statement. The assessee deducted this ₹40 crore in its tax computation to prevent double taxation, which the AO rejected.
EPCG Government Grant: Customs duty benefits recognized in the P&L account under Ind AS 20 were reduced in the tax computation per Section 2(24)(viii) read with Explanation 10 to Section 43(1). The AO treated the P&L credit as taxable income.
TDR Cost of Acquisition: TDRs received against land acquisition were sold, giving rise to short-term capital loss. The AO treated the TDR cost of acquisition as Nil and assessed the entire sale consideration as short-term capital gain.
Leave Entitlement Disallowance: The AO disallowed the provision for leave entitlement despite the assessee’s claim that it was already disallowed under Section 43B.
Gift Expenses: Expenditure on gifts to employees and customers was claimed, which CIT(A) indicated could fall under “Employee Welfare Expenses” but remanded for verification.
Section 35(2AB) Research & Development: Weighted deduction for R&D expenditure was denied by the AO solely due to the non-issuance of Form 3CL by the prescribed authority, even though Form 3CM approval existed.

Decision

Accounting Treatment vs. Taxability (Ind AS, Royalty, EPCG Grant): Ruled in favor of the assessee. Mere credits in the P&L account under Ind AS do not determine taxability. Accounting entries cannot override statutory tax provisions or cause double taxation on amounts fully taxed in prior years.
ICDS Adjustments: Ruled in favor of the assessee. Discrepancies arising from different methodologies under Ind AS and ICDS IX do not constitute a double deduction unless specific evidence shows the same cost was allowed twice.
TDR Acquisition Cost, Leave Entitlement, and Gift Expenses: Remanded to the AO for fresh determination of TDR cost of acquisition, verification of prior Section 43B disallowances for leave entitlement, and examination of supporting documents for gift expenses.
Weighted R&D Deduction under Section 35(2AB): Ruled in favor of the assessee. Benefit cannot be denied due to non-issuance of Form 3CL by the prescribed authority when valid Form 3CM approval is in place.

Key Takeaways

Taxability Dominates Accounting: Accounting entries recorded under Ind AS do not generate taxable income unless supported by statutory provisions or real income accrual.
Protection Against Double Taxation: Once an entire income receipt (e.g., upfront royalty) is subjected to tax in an earlier year, subsequent Ind AS amortizations cannot be taxed again.
Procedural Delays Cannot Penalize Assessees: Deduction under Section 35(2AB) cannot be withheld due to administrative delays in issuing Form 3CL if the facility has approval under Form 3CM.

IN THE ITAT MUMBAI BENCH ‘A’

Aditya Birla Real Estate Ltd.

Commissioner of Income-tax

Smt. Beena Pillai, Judicial Member
and Jagadish, Accountant Member

IT Appeal Nos. 3476 & 4378 (MUM.) of 2025
[Assessment year 2019-20]

AUGUST 17, 2026

Yogesh Thar, Adv. and Vinayak Bhat, AR for the Appellant. Manoj kumar, CIT DR for the Respondent.

ORDER

Smt. Beena Pillai, Judicial Member.- These cross appeals filed by the assessee and the Revenue are directed against the order dated 31/03/2025 passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “Ld.CIT(A)”] for the assessment year 2019-20, on the following grounds of appeal:-

” ITA No. 3476/Mum/2025 (Assessee’s appeal)

GROUNDS OF APPEAL

Ground 1: Violation of principles of natural justice and nonapplication of mind

On the facts and in the circumstances of the case and in law, the Honourable Commissioner of Income-tax (Appeals) [‘Hon’ble CIT(A)’] erred in passing the appellate order in gross violation of the principles of natural justice, without affording the appellant adequate opportunity of hearing, including disregarding the Appellant’s specific request for a personal hearing via video conference to present facts, explanations, and supporting documents.

In view of the above, the Appellant prays that the appellate order passed by the Hon’ble CIT(A) is bad in law and the same should be quashed.

Ground 2: Disallowance of ICDS adjustment on account of security deposits amounting to INR 4,62,66,434

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in confirming the disallowance of the adjustment of INR 4,62,66,434 under ICDS IV – Revenue Recognition, relating to notional amortisation expense and rental income on interest-free security deposits, which do not represent real income taxable under the Act and are merely accounting entries mandated under Ind-AS.

Without prejudice to the foregoing, the Hon’ble CIT(A) has failed to appreciate the principle of consistency when similar adjustments were assessed and accepted by the Revenue in prior year (AY 2018-19) as well as subsequent years (AY 2022-23 and AY 2023-24), with no change in the underlying facts or applicable law, the departure from the accepted position in the current assessment year is arbitrary, unjustified, and contrary to settled judicial principles.

In view of the above grounds of appeal, the Appellant prays that the disallowance amounting to INR 4,62,66,434 be deleted.

Ground 3: Disallowance of ICDS adjustment on account of royalty income amounting to INR 40,00,00,000

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in confirming the disallowance of ICDS-IV adjustment of INR 40 crore on account of royalty income, which represented a mere timing difference arising from Ind-AS deferral and not real taxable income.

The Hon’ble CIT(A) failed to appreciate that the Appellant had already offered the entire royalty income of INR 600 crore to tax in AY 2018-19 (in the year of receipt) in accordance with the Act, which does not recognize deferred revenue income. Recognition of INR 40 crore under Ind-AS in subsequent years (including AY 2019-20) is purely for accounting purpose and does not give rise to any fresh income under the Act.

The Hon’ble CIT(A) failed to appreciate that the ICDS-IV adjustment was rightly made to prevent double taxation and align with the real income principle. Despite detailed computation and supporting material for AY 2018-19 being furnished during appellate proceedings, the Hon’ble CIT(A) remanded the matter to the Learned Assessing Officer (‘L’d AO’) without examining the evidence on record, resulting in unnecessary and prolonged litigation.

In view of the above grounds of appeal, the Appellant prays that the disallowance amounting to INR 40,00,00,000 be deleted.

Ground 4: Disallowance of ICDS adjustment on account of government grant amounting to INR 75,93,37,323

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) failed to adjudicate this ground despite all relevant submissions being on record, rendering the appellate order to that extent bad in law and violative of the principles of natural justice.

Without prejudice to the above, the Hon’ble CIT(A) erred in confirming the disallowance of the ICDS-VII adjustment of INR 75,93,37,323 relating to government grants under the EPCG Scheme, which were capital in nature and not taxable under Section 2(24)(xviii) read with Explanation 10 to Section 43(1) of the Act. The recognition of such grants as income in the financial statements pursuant to Ind-AS 20 represents notional income without accrual under the Act. The ICDS adjustment was validly made to reverse such notional income and compute real taxable income.

In view of the above grounds of appeal, the Appellant prays that the disallowance amounting to INR 75,93,37,323 be deleted.

Ground 5: Disallowance of ICDS adjustments on account of borrowing cost amounting to INR 10,36,11,508

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the disallowance of INR 10,36,11,508, being borrowing costs capitalised for qualifying assets as per the mandatory provisions of ICDS-IX, without appreciating that:

•

The said adjustment was made solely for computation of income under the Act in accordance with ICDS-IX.

•

No deduction under section 36(1)(iii) was claimed in respect thereof, and

•

The adjustment does not result in any double deduction.

In view of the above grounds of appeal, the Appellant prays that the disallowance amounting to INR 10,36,11,508 be deleted.

Ground 6: Disallowance of short-term capital loss of INR 39,66,26,986 on sale of TDR

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in confirming the disallowance of the Appellant’s claim of short-term capital loss of INR 39,66,26,986 on sale of TDR and in recomputing short-term capital gains.

The Hon’ble CIT(A) further erred in holding that the exchange of land for TDR and the sale of both tranches of TDR occurred in AY2019-20, whereas in fact the exchange transaction and first tranche sale took place in AY 2018-19, as evidenced by the Appellant’s submissions and accepted in the assessment proceedings of AY 2018-19.

The Hon’ble CIT(A) erred in concluding that no short-term capital loss is allowable to be carried forward, despite accepting the Appellant’s cost basis of INR 309.09 crores for the TDRs and erroneously acknowledging the overall gain on the transaction across both years.

The Hon’ble CIT(A) further failed to follow the principle of consistency by disregarding the fact that the short-term capital loss of INR 29.63 crores on sale of part TDR in AY 2018-19 was already accepted by the Revenue in the completed assessment for that year.

The Appellant, therefore, prays that the disallowance of short-term capital loss of INR 39,66,26,986 be deleted, and the correct cost of acquisition of the TDRs (i.e., INR 309.09 crores) be recognized in accordance with law. The recomputation of short-term capital gains at INR 160,16,38,418 by the Ld. AO may kindly be deleted. The finding of the Hon’ble CIT(A) that all components of the composite transaction (i.e., sale of land and sale of both TDR tranches) pertain to AY 2019-20 be held to be factually and legally erroneous.

Ground 7: Disallowance of the provision on account of leave entitlement amounting to INR 20,70,000

On the facts and in the circumstances of the case, and in law, the Hon’ble CIT(A) has erred in remanding the matter to the L’d AO with respect to the disallowance of provision on account of leave entitlement of INR 20,70,000, without appreciating that the Ld. AO made the disallowance without issuing any show cause notice or raising a specific query during assessment proceedings, thereby violating the principles of natural justice. Thus, assessment order to that extent is void ab initio and the addition made in connection therewith is not sustainable in law.

Without prejudice to the foregoing, the Hon’ble CIT(A) has failed to appreciate that the said provision on account of leave entitlement was already disallowed by the Appellant in its return of income for AY 2019-20 and that further disallowance of it made by the L’d AO leads to double disallowance.

Without prejudice to the foregoing, the Hon’ble CIT(A) has erred in directing the Ld. AO to examine the application of section 36(1)(v) which has no application in the present case since the disputed claim pertains to leave entitlement and not gratuity.

Further, the Hon’ble CIT(A) failed to examine the readily available records and remanded the matter to the L’d AO for verification without justification —an approach contrary to settled principles that discourage remand when no further factual inquiry is necessary.

The Appellant therefore prays that the disallowance of INR 20,70,000 be held to be unsustainable in law and deleted in full.

Ground 8: Disallowance of gifts amounting to INR 60,06,694

On the facts and in the circumstances of the case, and in law, the Hon’ble CIT(A) has erred in remanding the matter to the L’d AO with respect to the disallowance of INR 60,06,694 towards gift expenses, without appreciating that the L’d AO made the disallowance without issuing any show cause notice or raising a specific query during assessment proceedings, thereby violating the principles of natural justice. Thus, assessment order to that extent is void ab initio and the addition made in connection therewith is not sustainable in law.

Without prejudice to the foregoing, the Hon’ble CIT(A) has failed to appreciate that the expenses were incurred in business expediency and has been consistently allowed in earlier years, and no new facts or circumstances warranted a deviation from the principle of consistency.

Further, the Hon’ble CIT(A) erred in not seeking additional details during the appellate proceedings and remanding the matter, especially when the facts and nature of expenditure were clearly explained and available on record.

The Appellant prays that the disallowance of expenditure incurred on gifts amounting to INR 60,06,694 be held as unsustainable in law and be deleted.

Ground 9: Denial of weighted deduction claimed u/s 35(2AB) of the Act, amounting to INR 3,97,47,654

On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) erred in upholding the action of the L’d AO in denying weighted deduction under section 35(2AB) of the Act amounting to INR 3,97,47,654 and restricting the same to INR 2,64,98,436 as a revenue expenditure.

The Hon’ble CIT(A) erred in disallowing the weighted deduction under section 35(2AB) despite the Appellant having fulfilled all statutory conditions, including valid approval of the in-house R&D facility in Form 3CM for the relevant year. The absence of Form 3CL, which is to be issued by DSIR and is beyond the Appellant’s control, cannot be a valid ground to deny the claim.

The Hon’ble CIT(A) failed to appreciate that judicial precedents have consistently held that non-furnishing of Form 3CL by DSIR is a procedural lapse (on part of the prescribed authority) for which the Appellant cannot be penalized, when the approval in Form 3CM has been duly obtained and all other conditions are fulfilled.

In view of the above, the Appellant prays that the weighted deduction of INR 3,97,47,654 be allowed u/s 35(2AB).

Ground 10: Levy of interest under Sections 234C and 234D

The Hon’ble CIT(A) erred in confirming the levy of interest u/s. 234C and 234D of the Act by the Ld. AO.

The Appellant prays that the interest u/s. 234C and u/s. 234D be deleted.

The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable the Hon’ble Incometax Appellate Tribunal to decide this appeal according to law. “

ITA No. 4378/Mum/2025 (Revenue’s appeal)

“1. On the issue of Disallowance of Capital Loss on Sale of TDR:

1.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee is entitled to set off the short-term capital loss of 739,66,26,986/- on sale of Transferable Development Rights (TDR) against the short-term capital gain of $160,16,38,418/- without proper verification and contrary to findings of the Assessing Officer.

1.2 On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in law and in facts in accepting the assessee’s contention that the cost of acquisition of TDR should be apportioned from the land surrendered, ignoring the fact that the TDR was received over and above the sale consideration of land, and no supporting documentation was furnished by the assessee to establish the cost or valuation of the TDR.

1.3 On the facts and in the circumstances of the case and in law the Ld. CIT(A) has failed to appreciate that allowing cost towards TDR would result in double deduction, as cost of the land was already claimed while computing capital gains on land, thereby leading to incorrect computation of capital gain/loss.

2. On the issue of Disallowance of Gift Expenses amounting to 760,06,694/-:

2.1 On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in holding that the gift expenses could be considered under “employee welfare expenses” without proper examination of supporting evidence or justification as per the Income Tax Act.

2.2 On the facts and in the circumstances of the case and in law the Ld. CIT(A) failed to follow the procedure under Rule 46A of the Income Tax Rules by not calling for a remand report before considering additional submissions made during appellate proceedings.

3. The appellant craves leave to amend, add or withdraw any ground of appeal at the time of hearing. “

We shall first take up the appeal filed by the assessee in ITA No. 3467/Mum/2025.

2. Brief facts of the case are as under:-

The assessee is a company engaged in the business of manufacturing diversified products in various segments, including textiles, pulp and paper, chemicals, real estate, power generation and other allied activities. During the year under consideration, pursuant to a Scheme of Arrangement approved by the Hon’ble National Company Law Tribunal (NCLT), the cement division of the assessee stood demerged into Ultra Tech Cement Ltd., with effect from 20/05/2018. The assessee filed its return of income for the year under consideration on 26/10/2019 declaring total income at Nil under normal provisions of the Act and book profit of Rs.8,10,14,65,373/- u/s.115JB of the Act. The return was selected for complete scrutiny under CASS. Initially, the assessment proceedings were undertaken under the Faceless Assessment Scheme. however, on account of the demerger, the case was transferred to the jurisdiction of the Ld.AO in terms of section 144B(8) of the Act for completion of the assessment. Thereafter, the assessment was completed u/s.143(3) vide order dated 30/09/2021, making various additions and disallowances under the normal provisions of the Act, while no adjustment was made to the income computed under the provisions of section 115 JB of the Act.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A).

2.1. The Ld.CIT(A), vide order dated 31/03/2025, partly upheld the additions made by the Ld.AO, restored certain issues to the file of the Ld. AO for verification and granted partial relief to the assessee.

Aggrieved by the order of Ld.CIT(A), both the assessee and the Revenue preferred appeals before this Tribunal.

It is submitted that Ground No.1 is general in nature and, therefore, does not require any adjudication.

3. The Ld.AR submitted that Ground Nos.2 to 5 involve additions made by the Ld.AO on account of ICDS adjustments relating to security deposits, royalty income, Government grants and borrowing costs, which arise solely on account of the difference between the accounting treatment prescribed under Indian Accounting Standards (Ind AS) and the computation mechanism mandated under the Income Computation and Disclosure Standards (ICDS).

3.1. It was submitted that the assessee, being a listed company, mandatorily was required to prepare its financial statements in accordance with Ind AS, whereas computation of taxable income is governed by the provisions of the Act read with ICDS. Consequently, wherever the accounting treatment under Ind AS differs from the computation mechanism prescribed under ICDS, appropriate adjustments are necessarily to be made while computing taxable income.

4. In respect of Ground No.2, relating to ICDS adjustment of Rs.4,62,66,434/- on account of security deposits, The Ld.AR submitted that during A.Y. 2018-19, the assessee received interest-free refundable security deposit of Rs.200 crores from Grasim Industries Ltd. pursuant to a long-term arrangement for operation of its Viscose Filament Yarn Division.

4.1. It is submitted that the assessee is required to prepare its books as per In-AS. Thus, in accordance with Ind AS 109, the deposit was recognised at its discounted present value and the difference between the transaction value and its net present value was recognised as deferred income.

4.1.1. It is submitted that the assessee neither incurred any actual expenses towards amortisation of security deposits nor earned any actual rental income on the same. It is thus submitted that both amortisation expenses as well as rental income recorded in the financial statements are notional in nature.

4.2. In line with the above, Ld.AR submitted that during the year under consideration, the assessee recorded amortisation expenses of INR 9,30,18,526 and notional rental income of INR 13,92,84,963 as per the provisions of Ind-AS 109. Such amortization/ rental income (being notional in nature and recorded only from an accounting standpoint as required by Ind-AS) cannot be treated as an allowable expenditure/ taxable income under the provisions of the Act. He submitted that, end of the lease period (in the given illustration being 10 years), the impact of notional income and notional expense will be nil. It is also submitted that the notional amortisation expenses of INR 9,30,18,526/- have been disallowed while computing the taxable income for the year under consideration.

4.3. Similarly, the Ld.AR submitted that the notional rental income of INR 13,92,84,963 income also has been reduced while computing the taxable income for the year under consideration thus, leading to a net effect of INR 4,62,66,434 being decrease in profits as per ICDS IV on account of unwinding of security deposits.

A detailed presentation of unwinding of deposits received by the Rayon division is as under:

Particulars	Amount in INR	Amount in INR
Century Textiles and Industries Limited
Detailed presentation of unwinding of deposits received by the Rayon division
Entry on inception
Bank	2,00,00,00,000
To Security Deposit		2,00,00,00,000
Security Deposit	1,43,86,20,654
To Deferred Rent		1,43,86,20,654
Subsequent entry every year
Deferred Rent	9,59,08,044
To Rent Income		9,59,08,044
Interest Expense	See table below
To Security Deposit		See table below
Deposit Amortisation Schedule
Market rate of interest	8.50%
Monthly Rate	0.71%
Agreement terms
Amount of security deposit	2,00,00,00,000
Tenure of deposit	15 years
Start date	01 February 2018
End date	31 January 2033
Total deferred rent	1,43,86,20,654
Security deposit at present value	56,13,79,346

4.4. The impact of such amortisation on the computation of income is also provided at page 456 which is reproduced as under:

FINANCIAL YEAR	ASSESSMENT YEAR	DEFERRED RENT AMORTISED	INTEREST EXPENSES AMORTISED	NET INCOME	IMPACT ON COI	IMPACT ON COI IN AMOUNT
2017-18	2018-19	1,59,84,674	79,81,041	80,03,633	REDUCE	-80,03,633
2018-19	2019-20	9,59,08,044	5,03,26,281	4,55,81,763	REDUCE	-4,55,81,763
2019-20	2020-21	9,59,08,044	5,47,74,666	4,11,33,378	REDUCE	-4,11,33,378
2020-21	2021-22	9,59,08,044	5,96,16,249	3,62,91,795	REDUCE	-3,62,91,795
2021-22	2022-23	9,59,08,044	6,48,85,783	3,10,22,261	REDUCE	-3,10,22,261
2022-23	2023-24	9,59,08,044	7,06,21,096	2,52,86,948	REDUCE	-2,52,86,948
2023-24	2024-25	9,59,08,044	7,68,63,359	1,90,44,685	REDUCE	-1,90,44,685
2024-25	2025-26	9,59,08,044	8,36,57,380	1,22,50,664	REDUCE	-1,22,50,664
2025-26	2026-27	9,59,08,044	9,10,51,932	48,56,112	REDUCE	-48,56,112
2026-27	2027-28	9,59,08,044	9,91,00,095	-31,92,051	INCREASE	31,92,051
2027-28	2028-29	9,59,08,044	10,78,59,642	-1,19,51,598	INCREASE	1,19,51,598
2028-29	2029-30	9,59,08,044	11,73,93,453	-2,14,85,409	INCREASE	2,14,85,409
2029-30	2030-31	9,59,08,044	12,77,69,967	-3,18,61,923	INCREASE	3,18,61,923
2030-31	2031-32	9,59,08,044	13,90,63,669	-4,31,55,625	INCREASE	4,31,55,625
2031-32	2032-33	9,59,08,044	15,13,55,633	-5,54,47,589	INCREASE	5,54,47,589
2032-33	2033-34	7,99,23,370	13,63,00,414	-5,63,77,044	INCREASE	5,63,77,044
TOTAL		1,43,86,20,660	1,43,86,20,660	0	NET IMPACT	0

4.5. The Ld.AR further emphasised that, it is a well settled principle that the charge created under Section 4/5 of the Act is on income which becomes due to the taxpayer in respect of which there is an enforceable debt in favour of the taxpayer and a corresponding obligation on the payer. In other words, it is only real income which is taxable in the hands of a taxpayer. Thus, the Ld.AR submitted that for the year under consideration, recognition of deferred income and corresponding unwinding of the financial liability resulted in a net credit to the Profit & Loss Account of Rs.4,62,66,434/-. It was also contended that such credit represented only notional accounting adjustment arising under Ind AS and did not constitute real income chargeable to tax. Since ICDS prohibits recognition of discounted liabilities and mark-to-market gains, it was submitted that the assessee rightly reversed such notional income while computing taxable income.

5. Ground No. 3, relate to addition of Rs.40 crores on account of royalty income.

5.1. The Ld.AR submitted that the assessee granted Grasim Industries Ltd. the right to manage and operate its Viscose Filament Yarn business for a period of fifteen years against an upfront royalty of Rs.600 crores, which was fully offered to tax in A.Y. 2018-19. He referred to page 462 of the paper book vol 2 where in computation of Income for assessment year 2018-19 has been placed.

5.2. It is submitted that, under Ind AS, however, the same amount was required to be recognised in the books over the tenure of the agreement, resulting in recognition of Rs.40 crores as income during the relevant previous year. Ld. AR thus submitted that, since the entire royalty had already suffered tax in A.Y. 2018-19, the reversal of Rs.40 crores in the computation of income was only to avoid double taxation and to ensure taxation of real income.

6. Ground No.4 is in respect of, addition on account of Government grants of Rs.75,93,37,323/-.

6.1. The Ld.AR submitted that the amount represented customs duty benefit received under the Export Promotion Capital Goods (EPCG) Scheme for purchase of certain items. It is submitted that as per the scheme, the assessee has an obligation to export upto 8 items of the grant amount. It is submitted that upon fulfilling the export obligation, proportionate grant is released to the statement of Profit and loss.

6.2. Under the provisions of the Act, such grant is required to reduce the actual cost of the qualifying asset in terms of Explanation 10 to section 43(1) and does not constitute taxable income. However, as per Ind AS 20, such duty benefits are considered as Government Grants relating purchase of Property, Plant and Equipment (‘PPE’), and is required to be capitalised with the respective asset and a corresponding liability is recognised in the financial statements as deferred revenue. It is also submitted that the same is credited to the P&L account as ‘other income in the year in which the export obligations pertaining to the grant are fulfilled.

6.3. The Ld.AR submitted that during the year under consideration, the import duty benefit to the extent the obligation was fulfilled, was credited to the P&L account as ‘Other operating revenues as per Ind-AS 20. It is submitted that, such credit to the P&L account is merely from an accounting standpoint and the income recorded in the financial statements is notional in nature. The Ld.AR submitted that, such notional income (recognized in the P&L account as per Ind-AS 20) is not taxable as per the provisions of the Act and has accordingly, been reduced while computing the taxable income for the year under consideration.

6.4. The Ld.AR, without prejudice to the fact that the aforesaid income is notional and hence not taxable, submitted that the provisions of Section 2(24)(viii) of the Act, which state that the term ‘income includes assistance in the form of a subsidy or grant by the Government other than the subsidy or grant which is taken into account for determination of the actual cost of the asset as per Explanation 10 to Section 43(1) of the Act.

6.5. It was submitted that, Explanation 10 to Section 43(1) of the Act provides that, where an assessee receives any Government Grant with respect to purchase of an asset, the same should not be included in the actual cost of the asset to the assessee. It is submitted that the above-mentioned duty benefits have not been included in the respective block of assets for the purpose of calculation of depreciation under Section 32 of the Act. It was thus submitted that, the aforesaid duty benefits (regarded as Government Grant as per Ind-AS 20) are not taxable as per Section 2(24)(viii) of the Act.

7. Ground No.5, relate to addition of borrowing costs of Rs.10,36,11,508/-.

7.1. The Ld.AR submitted that Ind AS and ICDS prescribe different methods for capitalization of general borrowing costs. The Ld.AR submitted that while Ind AS capitalises borrowing costs by applying the capitalization rate to qualifying assets, ICDS IX prescribes a separate statutory formula based on the ratio of qualifying assets to total assets. He submitted that, since ICDS is mandatory for computation of taxable income, the assessee was required to recompute capitalization in accordance with ICDS IX. The difference between the amount capitalised in the books under Ind AS and the amount required to be capitalised under ICDS was therefore adjusted in the computation of income.

The Ld.AR submitted that the Ld.AO proceeded on an erroneous assumption that the assessee claimed double deduction, whereas the adjustment merely aligned taxable income with the statutory requirements of ICDS.

7.2. The Ld. AR further submitted that similar ICDS adjustments had been examined during the scrutiny assessments for A.Ys. 2018-19 and 2022-23 and, after considering identical explanations, no additions had been made by the Revenue. It was, therefore, contended that in the absence of any change in facts or law, the impugned additions were contrary to the settled principle of consistency.

7.3. The Ld. DR relied upon the assessment order and supported the findings of the Ld. AO as well as the order of the Ld. CIT(A) to the extent the additions had been sustained. It was submitted that the assessee reduced substantial amounts from its taxable income under the guise of ICDS adjustments without demonstrating that such reductions were permissible under the Act.

7.4. It was argued that the amounts credited to the Profit & Loss Account accrued in accordance with the mercantile system of accounting and constituted taxable income. According to the Ld. DR, the adjustments claimed by the assessee would result in reduction of taxable income despite the corresponding amounts having already been recognised in the books of account. The Ld. DR submitted that the Ld. AO had correctly held that permitting such deductions would effectively amount to allowing double deduction.

7.5. With respect to royalty income, the Ld. DR submitted that verification was necessary to establish whether the entire upfront royalty had in fact been offered to tax in A.Y. 2018-19 before any corresponding reduction could be allowed in the present year. Similarly, in respect of Government grants and borrowing costs, it was submitted that the assessee had failed to establish that the ICDS adjustments claimed were in accordance with the provisions of the Act.

7.6. The Ld. DR, therefore, prayed that the additions sustained by the Ld. CIT(A) be upheld and the grounds raised by the assessee be dismissed.

We have perused the submissions advanced by both sides in light of the record placed before us.

8. The issue arising in these grounds is essentially due to the difference between the accounting treatment under Ind AS and the manner in which income is required to be computed for the purposes of the Income-tax Act read with the applicable ICDS.

8.1. It is not in dispute that the assessee prepares its financial statements in accordance with Ind AS. The entries appearing in the financial statements are, therefore, required to be considered in the light of the accounting principles applicable under Ind AS. However, the taxable income of the assessee has to be determined in accordance with the provisions of the Act. For this purpose, the book results are only the starting point and necessary adjustments are required to be made wherever the Act or the ICDS provide for a different treatment.

8.2. Thus, an amount credited to the Profit & Loss Account under Ind AS cannot, merely for that reason, be treated as taxable income. Similarly, where the Act or the ICDS prescribe a particular method of computation which is different from the accounting treatment under Ind AS, the assessee is required to make the corresponding adjustment while computing its taxable income.

8.3. In the present case, therefore, the mere fact that the impugned amounts have been recognised in the financial statements under Ind AS cannot be the basis for making the additions. The tax treatment of each item has to be examined independently with reference to the provisions of the Act and the applicable ICDS. It is in this background that we proceed to examine each of the impugned adjustments.

The first issue relates to the adjustment of Rs.4,62,66,434/-arising on account of unwinding of the security deposits.

8.4. It is not in dispute that during A.Y. 2018-19, the assessee received an interest-free refundable security deposit of Rs.200 crores from Grasim Industries Ltd. pursuant to the arrangement for operation of its Viscose Filament Yarn Division. Since the assessee prepares its financial statements in accordance with Ind AS, the said deposit was recognised at its discounted present value in terms of Ind AS 109. The difference between the transaction value and the discounted value was recognised in the books in accordance with the said acc ard.

8.5. During the year under consideration, the assessee recognised amortisation of Rs.9,30,18,526/- and rental income of Rs.13,92,84,963/- in its financial statements on account of the aforesaid accounting treatment. The assessee has explained that these entries were only accounting entries arising from the application of Ind AS and did not represent any actual expenditure incurred or actual rental income received or accrued to it.

8.6. We find that the assessee has, in fact, added back the amortisation amount of Rs.9,30,18,526/- while computing its taxable income. At the same time, the rental income of Rs.13,92,84,963/- recognised in the books has also been reduced in the computation. Thus, the net reduction of Rs.4,62,66,434/-represents the difference between the two accounting entries. It is not a case where the assessee has claimed the amortisation as a deduction and has thereafter sought any further deduction on the same account.

8.7. The question, therefore, is whether the amount of Rs.13,92,84,963/- recognised as rental income in the books can be brought to tax merely because it has been credited to the Profit & Loss Account. In our considered view, the answer has to be in the negative. The amount has been recognised pursuant to the accounting treatment prescribed under Ind AS 109. The Revenue has not brought any material on record to show that the assessee had, in fact, earned or received such rental income or that any corresponding enforceable right to receive the said amount had accrued to the assessee during the year.

8.8. It is well settled that the tax liability is to be determined with reference to income chargeable under the provisions of the Act and not merely on the basis of an accounting entry appearing in the financial statements. Where the accounting treatment under Ind AS results in recognition of an amount which does not represent real income accruing to the assessee, such accounting recognition, by itself, cannot be the basis for bringing the amount to tax.

8.9. In the present case, the Revenue has not demonstrated that the rental income recognised under Ind AS represents any independent accrual of income to the assessee. Further, the corresponding amortisation has admittedly not been claimed as a deduction. Therefore, the observation of the Assessing Officer that the adjustment results in a double deduction is not borne out from the computation furnished by the assessee.

8.10. In these circumstances, we are of the view that the net adjustment of Rs.4,62,66,434/- made by the assessee merely neutralises the accounting impact arising under Ind AS and does not result in any impermissible deduction. The addition cannot be sustained merely on the basis that the corresponding amount is reflected in the Profit & Loss Account.

8.11. We also take note of the submission of the Ld. AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the assessee’s explanations.

8.12. While the principle of res judicata does not apply to incometax proceedings, where a particular method of tax computation has been examined and accepted in earlier and subsequent assessment years, and there is no change in the material facts or the applicable statutory provisions, a departure from the accepted position would require the Revenue to demonstrate the distinguishing feature warranting such departure.

No such distinguishing feature has been brought on record in the present case.

Accordingly, Ground No. 2 raised by the assessee stands allowed.

9. The next issue relates to the addition of Rs.40 crores on account of royalty income.

9.1. It is the case of the assessee that it had granted Grasim Industries Ltd. the right to manage and operate its Viscose Filament Yarn business for a period of fifteen years against an upfront royalty of Rs.600 crores. The assessee has placed on record, at page 462 of Paper Book Volume-II, the computation of income for A.Y. 2018-19 and has submitted that the entire amount of Rs.600 crores was offered to tax in that year.

9.2. We have perused the material placed on record in this regard. The assessee has explained that, although the entire royalty was received upfront and offered to tax in A.Y. 2018-19, an amount of Rs.40 crores was recognised as income in the financial statements during the year under consideration in accordance with the revenue recognition requirements of Ind AS, whereby the upfront consideration was recognised over the tenure of the arrangement.

9.3. In our considered view, the accounting recognition of the receipt under Ind AS cannot result in taxation of the same receipt again when the entire consideration has already been subjected to tax in an earlier year. The relevant consideration is whether the Rs.40 crores recognised in the books represents any fresh receipt or income accruing to the assessee during the year. The Revenue has not brought any material on record to show that the amount recognised during the year represents any consideration over and above the upfront royalty of Rs.600 crores.

9.4. The Ld. DR has submitted that it was necessary to verify whether the entire upfront royalty had actually been offered to tax in A.Y. 2018-19. We find that the assessee has placed on record the computation of income for the said assessment year in support of its contention. No material has been brought on record by the Revenue to controvert the same or to establish that any part of the upfront royalty remained to be brought to tax in that year.

9.5. In these circumstances, the recognition of Rs.40 crores as revenue in the financial statements during the year under consideration is only an accounting consequence of the treatment prescribed under Ind AS. It does not represent a fresh accrual of income merely because the amount has been recognised in the Profit & Loss Account in the year under consideration.

9.6. The distinction between the accounting treatment and the computation of taxable income is, therefore, material. The year in which revenue is recognised in the financial statements under Ind AS cannot, by itself, determine the year in which the same receipt is chargeable to tax under the Act. Once the entire upfront royalty of Rs.600 crores has already been offered to tax in A.Y. 2018-19, bringing Rs.40 crores thereof to tax again in the present year would result in taxing the same consideration twice.

9.7. We, therefore, find merit in the contention of the assessee that the reduction of Rs.40 crores in the computation of taxable income was made only to exclude the amount which had already suffered tax in the earlier year. The Revenue has not demonstrated any basis for treating the said amount as a separate or additional income of the assessee for the year under consideration.

9.7.1. We also take note of the submission of the Ld. AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the assessee’s explanations.

9.8. While the principle of res judicata does not apply to incometax proceedings, where a particular method of tax computation has been examined and accepted in earlier and subsequent assessment years, and there is no change in the material facts or the applicable statutory provisions, a departure from the accepted position would require the Revenue to demonstrate the distinguishing feature warranting such departure.

No such distinguishing feature has been brought on record in the present case.

Accordingly, Ground No. 3 raised by the assessee stands allowed.

10. The next issue relates to the addition of Rs.75,93,37,323/- on account of Government grants/customs duty benefits received under the EPCG Scheme.

10.1. The assessee has explained that the benefit was received in connection with the purchase of specified items under the EPCG Scheme and was subject to fulfilment of the prescribed export obligation. Upon fulfilment of the export obligation, the corresponding amount was recognised in the Profit & Loss Account in accordance with Ind AS 20.

10.2. We find that the dispute arises essentially because the amount so recognised in the books has been treated by the Ld.AO as taxable income. The assessee, on the other hand, has contended that the tax treatment of the grant has to be determined with reference to the provisions of the Act and not merely on the basis of its accounting treatment under Ind AS 20.

10.3. In this regard, the assessee has relied upon section 2(24)(viii) read with Explanation 10 to section 43(1) of the Act. The assessee has also submitted that the aforesaid duty benefits have not been included in the respective block of assets for the purpose of computing depreciation under section 32.

10.4. We have considered the submissions and perused the material available on record. In our view, the mere fact that the amount has been credited to the Profit & Loss Account in accordance with Ind AS 20 cannot, by itself, determine its taxability. The financial statements are prepared in accordance with the applicable accounting standards, whereas the computation of taxable income has to be made in accordance with the provisions of the Act.

10.5. The provisions of section 2(24)(viii), read with Explanation 10 to section 43(1), specifically deal with the tax treatment of a subsidy or grant received in connection with an asset. Therefore, where the Act provides a specific treatment for such grant or subsidy, the same has to be given effect to while computing taxable income, irrespective of the manner in which the amount is recognised or presented in the financial statements.

10.6. In the present case, the Revenue has not brought any material on record to show that the amount credited to the Profit & Loss Account represents any income taxable independently under the Act, over and above the Government benefit to which the statutory provisions relating to determination of actual cost apply. Nor has the Revenue controverted the assessee’s submission that the said duty benefits have not been included in the relevant block of assets for the purpose of depreciation.

10.7. We are, therefore, of the view that the accounting treatment under Ind AS 20 cannot override the specific provisions of the Act. The recognition of the amount as income in the financial statements is an accounting consequence and, by itself, cannot be a basis for treating the same amount as taxable income.

10.8. Accordingly, we find that the amount of Rs.75,93,37,323/-cannot be brought to tax merely because it has been credited to the Profit & Loss Account under Ind AS 20. The addition made by the Assessing Officer and sustained by the Ld. CIT(A) is, therefore, not sustainable.

10.9. We also take note of the submission of the Ld. AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the assessee’s explanations.

11. While the principle of res judicata does not apply to incometax proceedings, where a particular method of tax computation has been examined and accepted in earlier and subsequent assessment years, and there is no change in the material facts or the applicable statutory provisions, a departure from the accepted position would require the Revenue to demonstrate the distinguishing feature warranting such departure.

No such distinguishing feature has been brought on record in the present case.

Accordingly, Ground No. 4 raised by the assessee stands allowed.

11. The last issue relates to the addition of Rs.10,36,11,508/- on account of borrowing costs.

11.1. The assessee has submitted that the difference has arisen on account of the different methods prescribed under Ind AS and ICDS IX for determining the amount of borrowing cost to be capitalised. While the financial statements have been prepared in accordance with Ind AS, the amount required to be capitalised for the purpose of computation of taxable income was determined in accordance with ICDS IX. The resultant difference was accordingly adjusted in the computation of income.

11.2. We have considered the submissions of both the parties and perused the material available on record. It is not the case of the Revenue that the assessee was not required to follow ICDS IX while computing its taxable income. Therefore, where the amount of borrowing cost required to be capitalised under ICDS IX is different from the amount recognised in the financial statements under Ind AS, the computation of taxable income has to give effect to such difference.

11.3. In our considered view, the mere fact that an amount has been capitalised in the books under Ind AS cannot be a ground to disregard the computation made in accordance with ICDS IX. The two computations serve different purposes and, therefore, a difference arising on account of the methodology prescribed under the respective standards cannot, by itself, be treated as a claim for double deduction.

11.4. The Ld.AO proceeded on the basis that the adjustment made by the assessee resulted in a double deduction. However, no specific working has been brought on record to demonstrate that the same borrowing cost has actually been allowed as a deduction twice. The existence of a difference between the amount capitalised under Ind AS and the amount determined under ICDS IX, by itself, does not establish such double deduction.

11.5. It is also relevant that the adjustment made by the assessee is only a computation adjustment arising from the application of ICDS IX. It does not amount to a fresh claim of expenditure. Once the amount required to be capitalised for tax purposes is determined in accordance with the prescribed method under ICDS IX, the corresponding adjustment in the computation of income is a necessary consequence.

11.6. We, therefore, find that the impugned adjustment cannot be disallowed merely because the amount capitalised in the financial statements under Ind AS differs from the amount required to be capitalised for the purposes of computation of taxable income under ICDS IX. In the absence of any material demonstrating that the assessee has actually claimed a double deduction, the addition is not sustainable.

11.7. We also take note of the submission of the Ld.AR that identical ICDS adjustments were examined by the Revenue in the scrutiny assessments for Assessment Years 2018-19 and 2022-23, and no additions were made after considering the assessee’s explanations.

11.8. While the principle of res judicata does not apply to incometax proceedings, where a particular method of tax computation has been examined and accepted in earlier and subsequent assessment years, and there is no change in the material facts or the applicable statutory provisions, a departure from the accepted position would require the Revenue to demonstrate the distinguishing feature warranting such departure.

No such distinguishing feature has been brought on record in the present case.

Accordingly, Ground No. 5 raised by the assessee stands allowed.

12. Ground No.6 raised by the assessee is in respect of disallowance of STCL of Rs.39,66,26,986 on sale and recomputing short term capital gain at INR 160,16,38,418 on sale of TDR:

12.1. The assessee’s land at Worli was compulsorily acquired by MHADA, against which the assessee received Transferable Development Rights (TDRs). The assessee treated the transaction as an exchange and, for A.Y. 2018-19, offered long-term capital gain of Rs.212,05,26,070/- on the land surrendered, taking the FMV of the land at Rs.309,09,97,590/- as the consideration. Correspondingly, the assessee treated the said FMV as the cost of acquisition of the TDRs received in exchange.

12.2. During A.Y. 2018-19, the assessee sold the first tranche of TDRs and computed short-term capital loss of Rs.29,63,83,924/-. The same was accepted by the AO. During the year under consideration, the assessee sold the balance TDRs for Rs.1,60,16,38,418/- and, after allocating the proportionate cost of acquisition of Rs.1,99,82,65,404/-, computed short-term capital loss of Rs.39,66,26,986/-. Thus, the assessee claimed an aggregate short-term capital loss of Rs.69,30,10,910/- against the long-term capital gain of Rs.212,05,26,070/- arising on the original transaction.

12.2.1. The Ld.AO, however, treated the cost of acquisition of the TDRs as Nil and consequently assessed the entire sale consideration of Rs.1,60,16,38,418/- as short-term capital gain. On an appeal before the Ld.CIT(A), the Ld. CIT(A) observed and held as under:

“V. FINDINGS OF THE CIT(APPEALS) – The Short Term Capital loss can be set off against the Capital gain of Rs 1601638418 (this needs more verification and can be concluded after loss can be set off against calling for the records). The cost of entire TDR of Rs 309.09 crores has been apportioned to the value of the TDR sold in the year under consideration. The company has sold part TDR in A. Y. 2018-19 and part in AY 2019-20. Upon sale of TDR the company has claimed a capital loss of Rs. 29,63,83,924/- in AY 2018-19 and Rs. 39,66,26,986 in the year under consideration i.e AY 2019-20. As against a total loss of Rs. 69.29 cores, the company has offered a capital gain of Rs. 212.05 crores on land which was exchanged against the TDR. Thus, the company has overall offered a gain on the entire sale transaction. After setting off the entire capital loss no capital loss will be allowed to be carried forward, since there is a net gain and this is to be offered to tax. “

Aggrieved by the order of Ld.CIT(A), assessee as well as revenue are in appeal before this Tribunal.

13. The Ld.AR submitted that the assessee’s claim of short-term capital loss of Rs.39,66,26,986/- was in accordance with the manner in which the cost of the TDRs had been determined at the time of their acquisition in exchange for the land. It was submitted that the assessee had already offered the capital gain arising on surrender of the land to MHADA and had accordingly treated the FMV of the land as the cost of the TDRs received in exchange.

13.1. It was further submitted that, in A.Y. 2018-19, the AO had accepted the assessee’s computation of short-term capital loss of Rs.29,63,83,924/- on sale of the first tranche of TDRs. Since the facts and circumstances relating to the balance TDRs sold during the year remained the same, the AO ought to have followed the same treatment in the year under consideration. The Ld. AR accordingly relied upon the principle of consistency and submitted that there was no change in the facts or circumstances warranting a different treatment in the present year.

13.2. On the contrary, the Ld. DR submitted that the assessee’s claim may be verified with reference to the records to ascertain whether the corresponding capital gains arising in A.Y. 2018-19 had in fact been offered to tax and the taxes thereon had been duly discharged.

We have perused the submissions advanced by both sides in light of records placed before us.

14. The assessee had received TDRs from MHADA in exchange for the land surrendered by it and had, in A.Y. 2018-19, offered longterm capital gain of Rs.212,05,26,070/- on the said transaction. The assessee thereafter attributed the corresponding cost to the TDRs received and, on sale of the first tranche of TDRs in A.Y. 2018-19, computed short-term capital loss of Rs.29,63,83,924/-. It is the specific contention of the assessee that the said claim was accepted by the Ld. AO in the assessment for A.Y. 2018-19.

14.2. During the year under consideration, the assessee sold the balance TDRs for Rs.1,60,16,38,418/- and, after reducing the proportionate cost of acquisition of Rs.1,99,82,65,404/-, computed short-term capital loss of Rs.39,66,26,986/-. The Ld. AO, however, treated the cost of acquisition of the TDRs as Nil and consequently assessed the entire sale consideration as short-term capital gain.

14.3. The Ld.CIT(A), while considering the matter, noticed that the assessee had offered long-term capital gain of Rs.212.05 crores on the land exchanged for the TDRs and had claimed short-term capital losses of Rs.29.63 crores in A.Y. 2018-19 and Rs.39.66 crores in the year under consideration. The Ld. CIT(A) observed that the short-term capital loss could be set off against the capital gain of Rs.160,16,38,418/-, subject to verification, and accordingly directed that the matter be examined with reference to the records. Both the assessee and the Revenue are aggrieved by the order of the Ld. CIT(A).

14.4. The Ld.AR has challenged the denial of the cost of acquisition of the TDRs and submitted that the assessee had already offered the capital gain arising on surrender of the land to MHADA in A.Y. 2018-19. It was further submitted that the claim of short-term capital loss on sale of the first tranche of TDRs was accepted by the Ld. AO in A.Y. 2018-19 and, there being no change in the facts, the same basis ought to be followed in respect of the balance TDRs sold during the year.

14.5. The Ld. DR, on the other hand, has sought verification of the assessee’s claim with reference to the records, particularly to ascertain whether the capital gain arising from the original transaction in A.Y. 2018-19 was actually offered to tax and the corresponding tax liability was discharged. The Ld. DR has also challenged the action of the Ld. CIT(A) in allowing set-off of the alleged short-term capital loss against the capital gain of Rs.1,60,16,38,418/-.

14.6. In our considered view, both the claim of the assessee and the Revenue’s objection to the set-off are interlinked with the determination of the correct cost of acquisition of the TDRs. Unless the cost attributable to the TDRs and the resultant capital gain or loss are first correctly determined, the question of allowing or disallowing the consequential set-off cannot be finally decided.

14.7. Further, the assessee’s claim regarding the cost of acquisition of the TDRs is based upon the treatment of the original transaction in A.Y. 2018-19. Therefore, the assessment records of A.Y. 2018-19 are required to be examined to ascertain the manner in which the original transaction was assessed, whether the capital gain of Rs.212,05,26,070/- was actually offered to tax and the corresponding tax liability was discharged, and the basis on which the cost of the TDRs was determined. The treatment accorded to the first tranche of TDRs sold in A.Y. 2018-19 is also a relevant consideration while examining the claim relating to the balance TDRs.

14.8. We, therefore, deem it appropriate to restore the issue to the file of the Ld.AO for fresh examination. The Ld.AO shall verify the assessment records for A.Y. 2018-19 and examine:

whether the capital gain of Rs.212,05,26,070/- arising from the surrender/exchange of the land was offered to tax and the corresponding tax liability was duly discharged;

the basis on which the cost of the TDRs was determined;

whether the claim of short-term capital loss of Rs.29,63,83,924/- on sale of the first tranche of TDRs was accepted in A.Y. 2018-19; and

the correctness of the proportionate cost of Rs.1,99,82,65,404/- claimed against the balance TDRs sold during the year.

15. After determining the correct cost of acquisition and the resultant capital gain or loss in respect of the TDRs sold during the year, the Ld.AO shall also examine the consequential issue of setoff in accordance with the provisions of the Act. Thus, the direction of the Ld.CIT(A) allowing the set-off cannot be sustained at this stage as a final determination, since the underlying short-term capital loss itself requires verification. The Ld. AO shall accordingly decide the issue afresh, after affording adequate opportunity to the assessee.

Accordingly, Ground No. 6 of the assessee and the ground no1 raised by the Revenue are allowed for statistical purposes.

16. Ground No.7 raised by the assessee is in respect disallowance of leave encashment of Rs.20,70,000/-.

16.1. The Ld.AO noted that as per note 20 to the notes to account, the assessee claimed provision of Rs.20,70,000/- towards, leave entitlement, however, the same was not added in the computation of income. The Ld.AO thus added the same in the hands of the assessee.

Aggrieved by the view taken by the Ld.AO the assessee preferred appeal before the Ld.CIT(A).

16.2. Before the Ld.CIT(A), it was contended that the amount has already been disallowed under section 43B in the Tax audit report, as reflected under clause 26B.

16.3. The Ld.CIT(A) directed the Ld.AO to verify if actual payments have been made before the due date of filing of the return as per provisions of section 36(1(v).

Against this view the assessee is in appeal before this Tribunal.

16.4. The contention of the Ld.AR is that the amount of Rs.20,70,000/- had already been disallowed in the computation of income under section 43B and, therefore, the addition made by the Ld.AO results in a double disallowance.

16.5. We find that the Ld. CIT(A) has directed the Ld.AO to verify whether the amount was actually paid before the due date of filing of the return. However, the primary issue requiring verification is whether the amount of Rs.20,70,000/- had already been disallowed in the computation of income under section 43B. If the amount has already been added back, the question of making a further addition does not arise.

16.6. We, therefore, deem it appropriate to restore the issue to the file of the Ld.AO for the limited purpose of verifying the assessee’s claim from the computation of income, Tax Audit Report and other relevant records. If it is found that the provision of Rs.20,70,000/-has already been disallowed while computing the taxable income, the same shall not be disallowed again. If, however, the claim is not found to be correct, the Ld.AO shall examine the allowability of the amount in accordance with the provisions of section 43B and pass an order in accordance with law. Needless to say, the assessee shall be afforded reasonable opportunity of being heard and to furnish the relevant supporting documents.

Accordingly, Ground No.7 is allowed for statistical purposes.

17. Ground No.8 raised by the assessee is in respect of disallowance of Gifts amounting to Rs.60,06,694/-.

17.1. The Ld. CIT(A), while considering the issue, observed that the gifts were given to employees and customers and could qualify as “Employee Welfare Expenses”. The Ld. CIT(A) further observed that, considering the magnitude of the assessee-company and the explanation furnished that the expenditure was incurred out of business expediency, a certain degree of leniency could be shown. However, taking note of the assessee’s contention that the Ld. AO had not issued any specific questionnaire seeking details pertaining to the gift expenditure and, consequently, no effective opportunity had been granted to the assessee, the Ld. CIT(A) restored the issue to the file of the Ld. AO with a direction to call for the relevant records and allow credit if the expenditure was found to be allowable under the provisions of the Act.

17.2. We have perused the submissions advanced by both sides in light of the record placed before us. From the findings of the Ld. CIT(A), it is evident that the issue relating to the allowability of the expenditure towards gifts has not been adjudicated conclusively on merits. The Ld. CIT(A) has restored the issue to the file of the Ld. AO primarily on the ground that the assessee was not afforded adequate opportunity to substantiate its claim.

17.3. In view of the above, and considering that the issue requires examination of the nature and purpose of the expenditure as well as the supporting documentary evidence, we deem it appropriate to restore the issue to the file of the Ld. AO for fresh adjudication in accordance with law. The Ld. AO shall provide due and adequate opportunity of being heard to the assessee and shall examine the claim afresh after considering the submissions and documentary evidence furnished by the assessee. The assessee shall also be at liberty to furnish all relevant details and supporting evidences in support of its claim. Needless to state, the Ld. AO shall pass a speaking and reasoned order in accordance with law.

Accordingly, Ground No. 8 raised by the assessee is allowed for statistical purposes. The corresponding ground raised by the Revenue is also allowed for statistical purposes.

18. Ground No.9 is in respect of denial of weighted deduction claimed under section 35(2AB) of the Act at Rs.3,97,47,645/-.

18.1. The Ld.CIT(A), while adjudicating the issue, observed that the assessee had duly approved in-house scientific Research & Development facilities at Jhagadia-Bharuch, Gujarat. The said facilities were approved by the prescribed authority vide certificate in Form No.3CM dated 12/02/2016 for the period from 01/04/2015 to 31/03/2017, covering AYs 2016-17 and 2017-18. It was further observed that a certificate dated 01/11/2019 in Form No. 3CM had been issued granting extension of approval of the in-house Research & Development facility for the period from 01/04/2017 to 31/03/2020, covering AYs 2018-19 to 2020-21. The Ld. CIT(A) further noted that Form No. 3CL was pending issuance by the prescribed authority and that the assessee had already filed a reminder with the prescribed authority in this regard. The Ld. CIT(A), therefore, directed the assessee to produce Form No. 3CL before the Ld. AO while giving effect to the appellate order.

We have perused the submissions advanced by both sides in light of the record placed before us.

18.2. The fact that the in-house scientific Research & Development facility of the assessee was duly approved by the prescribed authority in Form No. 3CM for the relevant period is not in dispute. The denial of the claim arose on account of non-availability of Form No. 3CL from the prescribed authority. We find that the issue is squarely covered in favour of the assessee by the decision of the coordinate Bench of the Tribunal in Rallis India Ltd. v. Asstt. CIT (Mumbai – Trib.)/ITA No. 4210/Mum/2024, order dated 13/12/2024, wherein, on an identical issue, the coordinate Bench, after considering the decision of the Hon’ble Bombay High Court in Astec LifeSciences Ltd. v. Asstt. CIT 459 ITR 595 (Bombay)/W.P. No. 1790 of2022, and the decision of the Hon’ble Gujarat High Court in CIT v. Sun Pharmaceutical Industries Ltd. [2017] (Gujarat), held that the communication in Form No. 3CL is between the prescribed authority and the Income-tax Department and that the assessee cannot be made to suffer for the failure of the prescribed authority to furnish such Form.

18.3. In the present case also, the assessee obtained requisite approval of its in-house Research & Development facility in Form No.3CM for the relevant period. The subsequent furnishing of Form No.3CL is an act to be undertaken by the prescribed authority and the assessee cannot be denied the benefit of deduction u/s.35(2AB) merely on account of non-furnishing of the said Form by the prescribed authority. The fact that the assessee took steps by addressing a reminder to the prescribed authority further demonstrates that the assessee duly pursued the matter.

18.4. Respectfully following the aforesaid decision of the coordinate Bench and the judicial precedents relied upon therein, we hold that the absence of Form No. 3CL, in the facts of the present case, cannot be a ground for denying the assessee the weighted deduction claimed u/s. 35(2AB) of the Act.

Accordingly, Ground No. 9 raised by the assessee stands allowed.

In the result assessee and revenue appeal allowed as indicated above.