DEEPAK NOVOCHEM TECHNOLOGIES LTD,MUMBAI vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-8(1), MUMBAI

PER OM PRAKASH KANT, AM

These appeals by the assessee are directed against a common order dated 09.06.2023 passed by the Ld. Commissioner of Income- tax (Appeals)-50, Mumbai [in short ‘the Ld. CIT(A)’] for assessment years 2014-15 to 2018-19. A common issue-in-dispute involved in these appeals, therefore same were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.

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Disallowance of deduction under section 35(2AB) Disallowance of deduction under section 35(2AB) 1. On the facts and in the circumsta 1. On the facts and in the circumstances of the case and in law, both nces of the case and in law, both the ld. Commissioner of Income the ld. Commissioner of Income-tax (Appeals), ("CIT(A)) and the Ld. tax (Appeals), ("CIT(A)) and the Ld. Assessing Officer ('AO') erred in allowing weighted deduction under Assessing Officer ('AO') erred in allowing weighted deduction under Assessing Officer ('AO') erred in allowing weighted deduction under section 35(2AB) of the Income Tax Act, 1961 ('Act') with reference to section 35(2AB) of the Income Tax Act, 1961 ('Act') with reference to section 35(2AB) of the Income Tax Act, 1961 ('Act') with reference to expenditure of R expenditure of Rs. 59,38,000 only, as against the Appellant's claim for s. 59,38,000 only, as against the Appellant's claim for weighted deduction with reference to expenditure of Rs. 62,17,380, weighted deduction with reference to expenditure of Rs. 62,17,380, weighted deduction with reference to expenditure of Rs. 62,17,380, thereby making partial disallowance of claim for weighted deduction thereby making partial disallowance of claim for weighted deduction thereby making partial disallowance of claim for weighted deduction with reference to expenditure of Rs. 2,79,380. with reference to expenditure of Rs. 2,79,380. 2. On the facts and in the circumstances of the case and in law, both 2. On the facts and in the circumstances of the case and in law, both 2. On the facts and in the circumstances of the case and in law, both the Ld. CIT(A) and the Ld. AO erred in relying on Form No. 3CL issued the Ld. CIT(A) and the Ld. AO erred in relying on Form No. 3CL issued the Ld. CIT(A) and the Ld. AO erred in relying on Form No. 3CL issued by the Department of Scientific and Industrial Research ('DSIR'), by the Department of Scientific and Industrial Research ('DSIR'), by the Department of Scientific and Industrial Research ('DSIR'), Ministry of Science and Technology, Government of Ministry of Science and Technology, Government of India, ignoring the India, ignoring the fact that DSIR was empowered to certify the Research and Development fact that DSIR was empowered to certify the Research and Development fact that DSIR was empowered to certify the Research and Development expenditure only vide amended Rule 6(7) of the Income Tax Rules, 1962 expenditure only vide amended Rule 6(7) of the Income Tax Rules, 1962 expenditure only vide amended Rule 6(7) of the Income Tax Rules, 1962 ('Rules') inserted w.e.f. July 1, 2016 and not from the year under ('Rules') inserted w.e.f. July 1, 2016 and not from the year under ('Rules') inserted w.e.f. July 1, 2016 and not from the year under appeal. 3. Without prejudice t Without prejudice to the above grounds, on the facts and in the o the above grounds, on the facts and in the circumstances of the case and in law, the Ld. AO erred in alternatively circumstances of the case and in law, the Ld. AO erred in alternatively circumstances of the case and in law, the Ld. AO erred in alternatively not allowing deduction under section 35(1) or section 37 of the Act for not allowing deduction under section 35(1) or section 37 of the Act for not allowing deduction under section 35(1) or section 37 of the Act for the expenditure of Rs. 2,79,380 not considered for the purposes of the expenditure of Rs. 2,79,380 not considered for the purposes of the expenditure of Rs. 2,79,380 not considered for the purposes of granting weighted deduction under section 35(2AB) of the Act, without granting weighted deduction under section 35(2AB) of the Act, without granting weighted deduction under section 35(2AB) of the Act, without appreciating that the said expenditure has not lost its character either appreciating that the said expenditure has not lost its character either appreciating that the said expenditure has not lost its character either as expenditure on scientific research or as business expenditure as expenditure on scientific research or as business expenditure as expenditure on scientific research or as business expenditure incurred wholly and exclusively for the purposes incurred wholly and exclusively for the purposes of business of the of business of the Appellant. Set off of brought forward losses not allowed under section 72 Set off of brought forward losses not allowed under section 72 Set off of brought forward losses not allowed under section 72 4. On the facts and in the circumstances of the case, and in law, the Ld. 4. On the facts and in the circumstances of the case, and in law, the Ld. 4. On the facts and in the circumstances of the case, and in law, the Ld. AO erred in not setting off brought forward business losses from the AO erred in not setting off brought forward business losses from the AO erred in not setting off brought forward business losses from the taxable income. taxable income.

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Initiation of penalty proceedings itiation of penalty proceedings 5. On the facts and in the circumstances of the case, and in law, the Ld. On the facts and in the circumstances of the case, and in law, the Ld. On the facts and in the circumstances of the case, and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) of the AO erred in initiating penalty proceedings under section 271(1)(c) of the AO erred in initiating penalty proceedings under section 271(1)(c) of the Act. 4. Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its Briefly stated, facts of the case are that the assessee filed its original return of income for the assessment year under original return of income for the assessment year under original return of income for the assessment year under consideration on 26.11.2014 declaring total loss of Rs.(-)1,09,690/-. consideration on 26.11.2014 declaring total loss of Rs.( consideration on 26.11.2014 declaring total loss of Rs.( Subsequently, assessment was completed u/s 143(3) of the Income- Subsequently, assessment was completed u/s 143(3) of the Income Subsequently, assessment was completed u/s 143(3) of the Income tax Act, 1961 (in short ‘the Act’) vide order dated 26.12.2016 tax Act, 1961 (in short ‘the Act’) vide order dated 26.12.2016 tax Act, 1961 (in short ‘the Act’) vide order dated 26.12.2016 wherein the total loss filed by the assessee was accepted. rein the total loss filed by the assessee was accepted. rein the total loss filed by the assessee was accepted. Subsequently, a search and seizure action u/s 132 of the Act was Subsequently, a search and seizure action u/s 132 of the Act was Subsequently, a search and seizure action u/s 132 of the Act was carried out on the premises of the assessee on 15.11.2018 and carried out on the premises of the assessee on 15.11.2018 and carried out on the premises of the assessee on 15.11.2018 and consequently, notice u/s 153A of the Act was issued and consequently, notice u/s 153A of the Act was issued and consequently, notice u/s 153A of the Act was issued and proceedings were accordingly completed on 20.04.2021 accordingly completed on 20.04.2021, wherein accordingly completed on 20.04.2021 the expenses incurred towards in expenses incurred towards in-house scientific research were house scientific research were restricted to Rs.59.38 lakhs as against the claim of the assessee of restricted to Rs.59.38 lakhs as against the claim of the assessee of restricted to Rs.59.38 lakhs as against the claim of the assessee of Rs.62,17,380/- thus, corresponding weighted deduction u/s thus, corresponding weighted deduction u/s thus, corresponding weighted deduction u/s 35(2AB) of the Act @ 200% amounting to Rs.5,58,760/ @ 200% amounting to Rs.5,58,760/- was declined to the assessee. declined to the assessee. On further appeal, the Ld. CIT(A) also On further appeal, the Ld. CIT(A) also upheld the finding of the Assessing Officer on the ground that the upheld the finding of the Assessing Officer on the ground that the upheld the finding of the Assessing Officer on the ground that the prescribed authority for approval u/s 35(2 uthority for approval u/s 35(2AB) of the Act i.e. AB) of the Act i.e. Department of Scientifi Department of Scientific and Industrial Research (DSIR) c and Industrial Research (DSIR) had only certified ‘total cost of cost of expenses’ incurred on research and incurred on research and development amounting to Rs.59.38 lakhs and thus the expenses development amounting to Rs.59.38 lakhs and thus the expenses development amounting to Rs.59.38 lakhs and thus the expenses claimed by the assessee cannot exceed claimed by the assessee cannot exceed ‘total cost’ as certified by the as certified by the prescribed authority. prescribed authority. Before the Ld. CIT(A), the assessee claimed Before the Ld. CIT(A), the assessee claimed

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that in view of amended Rule 6 of the Income that in view of amended Rule 6 of the Income-tax Rules, 1962 (in tax Rules, 1962 (in short ‘the Rules’) the provision for quantification of in-house short ‘the Rules’) the provision for quantification of short ‘the Rules’) the provision for quantification of scientific research and development expenses has been prescribed research and development expenses has been prescribed research and development expenses has been prescribed by way of Finance Act, 2016 Act, 2016, which would apply for assessment which would apply for assessment year 2017-18 onwards only and prior to that 18 onwards only and prior to that in absence of any in absence of any quantification prescribed quantification prescribed, the Assessing Officer was required to the Assessing Officer was required to allow the weighted deduction as claimed by the assessee and duly allow the weighted deduction as claimed by the assessee allow the weighted deduction as claimed by the assessee certified by the auditor of the company. The Ld. CIT(A) though ditor of the company. The Ld. CIT(A) though ditor of the company. The Ld. CIT(A) though accepted that said quantification accepted that said quantification of deduction u/s 35(2AB) of the of deduction u/s 35(2AB) of the Act was applicable was applicable from assessment year 2017 assessment year 2017-18 onwards, however, according to him owever, according to him, the prescribed authority has certified the prescribed authority has certified the ‘total cost’ for i in-house scientific research and development research and development incurred by the assessee i incurred by the assessee in respect of research facility, t n respect of research facility, therefore, he restricted the claim of deduction u/s 35(2AB) of the Act to the restricted the claim of deduction u/s 35(2AB) of the Act to the restricted the claim of deduction u/s 35(2AB) of the Act to the extent of the ‘total cost total cost’ which was submitted by the assessee by the assessee before the prescribed authority. The relevant finding of the Ld. CIT(A) is escribed authority. The relevant finding of the Ld. CIT(A) is escribed authority. The relevant finding of the Ld. CIT(A) is reproduced as under: reproduced as under:

5.2 The issue has been carefully examined after due consideration of the 5.2 The issue has been carefully examined after due consideration of the 5.2 The issue has been carefully examined after due consideration of the details available on record. It is borne out from the available details that details available on record. It is borne out from the available details that details available on record. It is borne out from the available details that relevant provisions, primarily and importantly Rule 6(7A) of the Rules, have relevant provisions, primarily and importantly Rule 6(7A) of the Rules, have relevant provisions, primarily and importantly Rule 6(7A) of the Rules, have been amended w.e.f. 01.07.201 been amended w.e.f. 01.07.2016 which provide for quantification of the 6 which provide for quantification of the expenditure incurred on in expenditure incurred on in-house research and development facility by the house research and development facility by the company during the previous year and eligible weighted deduction u/s company during the previous year and eligible weighted deduction u/s company during the previous year and eligible weighted deduction u/s 35(2AB) of the Act by the prescribed authority (the Secretary, DSIR) in 35(2AB) of the Act by the prescribed authority (the Secretary, DSIR) in 35(2AB) of the Act by the prescribed authority (the Secretary, DSIR) in Part B of Form 3CL. These changes have been effected from 01.07.2016 and it is of Form 3CL. These changes have been effected from 01.07.2016 and it is of Form 3CL. These changes have been effected from 01.07.2016 and it is the contention of the appellant that same are applicable from AY 2017 the contention of the appellant that same are applicable from AY 2017 the contention of the appellant that same are applicable from AY 2017-18 and NOT for the year under consideration i.e. AY 2014 and NOT for the year under consideration i.e. AY 2014-15. Hence, for the 15. Hence, for the year under consideration, acco year under consideration, according to the appellant, only the approval of rding to the appellant, only the approval of the prescribed authority in the prescribed form (Form the prescribed authority in the prescribed form (Form-3CL) is mandated for 3CL) is mandated for allowing corresponding claim of deduction u/s 35(2AB) of the Act made by allowing corresponding claim of deduction u/s 35(2AB) of the Act made by allowing corresponding claim of deduction u/s 35(2AB) of the Act made by it.

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However, an examination of the details submitted by the app However, an examination of the details submitted by the app However, an examination of the details submitted by the appellant highlight that the issue involved is NOT merely confined to the year of applicability, that the issue involved is NOT merely confined to the year of applicability, that the issue involved is NOT merely confined to the year of applicability, the facts forthcoming from the details submitted by the appellant the facts forthcoming from the details submitted by the appellant the facts forthcoming from the details submitted by the appellant themselves- highlight something more than that: highlight something more than that: The issue of disallowance undisputedly involves The issue of disallowance undisputedly involves two amounts viz., two amounts viz.,- • one claimed by the assessee • one claimed by the assessee-appellant in the return (Rs.6217380/ appellant in the return (Rs.6217380/-] and • the other one appearing in the pre • the other one appearing in the pre-amendment period Form amendment period Form-3CL issued by the prescribed authority for the year under consideration [Rs.5938000/ the prescribed authority for the year under consideration [Rs.5938000/ the prescribed authority for the year under consideration [Rs.5938000/- which has been subm which has been submitted by the appellant itself. It is also NOT in dispute that for the year under consideration the prescribed It is also NOT in dispute that for the year under consideration the prescribed It is also NOT in dispute that for the year under consideration the prescribed authority to grant approval for the subject R&D facility was the Secretary, authority to grant approval for the subject R&D facility was the Secretary, authority to grant approval for the subject R&D facility was the Secretary, DSIR [Department of Scientific and Industrial Research](Rule 6(1B) of DSIR [Department of Scientific and Industrial Research](Rule 6(1B) of DSIR [Department of Scientific and Industrial Research](Rule 6(1B) of the Rules). As per the records, the claim of the appellant is for an amount of As per the records, the claim of the appellant is for an amount of As per the records, the claim of the appellant is for an amount of Rs.6217380/- as having been incurred on its approved in as having been incurred on its approved in-house research and development facility in terms of the provisions of section 35(2AB) of the and development facility in terms of the provisions of section 35(2AB) of the and development facility in terms of the provisions of section 35(2AB) of the Act. However, no further det Act. However, no further details in respect of this. claim/amount of ails in respect of this. claim/amount of Rs.6217380/- [except note 32 of Notes on Account giving mere bifurcation [except note 32 of Notes on Account giving mere bifurcation thereof as Capital and Revenue Expenditure have been given. It has been thereof as Capital and Revenue Expenditure have been given. It has been thereof as Capital and Revenue Expenditure have been given. It has been contended that for the year under consideration (AY 2014 contended that for the year under consideration (AY 2014-15 which pert 15 which pertains to pre-amendment period) if the approval of the prescribed authority is amendment period) if the approval of the prescribed authority is amendment period) if the approval of the prescribed authority is available then the corresponding deduction becomes eligible. Such a available then the corresponding deduction becomes eligible. Such a available then the corresponding deduction becomes eligible. Such a contention may be applicable and true if there are no other facts available contention may be applicable and true if there are no other facts available contention may be applicable and true if there are no other facts available on record to raise any doubt on suc on record to raise any doubt on such quantum claimed by the appellant. h quantum claimed by the appellant. However, at this juncture, a look at the pre However, at this juncture, a look at the pre-amendment period FORM 3CL amendment period FORM 3CL issued in the appellant's case for the year under consideration, which has issued in the appellant's case for the year under consideration, which has issued in the appellant's case for the year under consideration, which has been submitted by the appellant itself is necessitated. The relevant extra been submitted by the appellant itself is necessitated. The relevant extra been submitted by the appellant itself is necessitated. The relevant extract of the same is reproduced, as under (emphasis supplied) of the same is reproduced, as under (emphasis supplied)-

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A bare perusal of the above extract issued by the Prescribed Authority A bare perusal of the above extract issued by the Prescribed Authority A bare perusal of the above extract issued by the Prescribed Authority (the Secretary, DSIR) indicates that quantum of Rs.59.38 lakhs specified (the Secretary, DSIR) indicates that quantum of Rs.59.38 lakhs specified (the Secretary, DSIR) indicates that quantum of Rs.59.38 lakhs specified therein is NOT approved expenditure but it has bee therein is NOT approved expenditure but it has been UNAMBIGUOUSLY n UNAMBIGUOUSLY noted as "Total cost of in noted as "Total cost of in-house research facility" and same noting has house research facility" and same noting has been again highlighted in the bottom row of the Table as been again highlighted in the bottom row of the Table as been again highlighted in the bottom row of the Table as-"Total R&D expenditure". Thus, the facts emanating from the documents submitted by the Thus, the facts emanating from the documents submitted by the Thus, the facts emanating from the documents submitted by the appellant itself [the Fo appellant itself [the Form 3CL] are that- as per the prescribed authority as per the prescribed authority the TOTAL COST of such research the TOTAL COST of such research-activities itself was Rs. 59.38 lakhs as activities itself was Rs. 59.38 lakhs as against the claim of Rs.62.17 lakhs made by the assessee. against the claim of Rs.62.17 lakhs made by the assessee. Hence, the issue, in the peculiar facts and circumstances, is NOT merely Hence, the issue, in the peculiar facts and circumstances, is NOT merely Hence, the issue, in the peculiar facts and circumstances, is NOT merely restricted to the year of applicability of the amended provisions (supra) or stricted to the year of applicability of the amended provisions (supra) or stricted to the year of applicability of the amended provisions (supra) or that in the pre that in the pre-amendment period (prior to AY 2017-18) approval of the 18) approval of the prescribed authority for quantification of subject deduction is required or prescribed authority for quantification of subject deduction is required or prescribed authority for quantification of subject deduction is required or not, but it clearly highlights tha not, but it clearly highlights that the quantum of the deduction claimed t the quantum of the deduction claimed u/s 35(2AB) by the assessee is higher than the "TOTAL COST" certified u/s 35(2AB) by the assessee is higher than the "TOTAL COST" certified u/s 35(2AB) by the assessee is higher than the "TOTAL COST" certified by the Prescribed Authority for the same underlying research activities. by the Prescribed Authority for the same underlying research activities. by the Prescribed Authority for the same underlying research activities. It would be pertinent to add here, that after the captioned amendments in It would be pertinent to add here, that after the captioned amendments in It would be pertinent to add here, that after the captioned amendments in Rule 6(7A) of the Rules, the Form Rule 6(7A) of the Rules, the Form-3CL contains a specific part i.e. PART 3CL contains a specific part i.e. PART-B which specifies the quantum of which specifies the quantum of-Approved Expenditure for the purposes of Approved Expenditure for the purposes of section 35(2AB) section 35(2AB)- unlike in the case under consideration, wherein the unlike in the case under consideration, wherein the TOTAL COST itself has been certified/spe TOTAL COST itself has been certified/specified and the undoubtedly the cified and the undoubtedly the quantum of underlying deduction cannot exceed such TOTAL COST. For quantum of underlying deduction cannot exceed such TOTAL COST. For quantum of underlying deduction cannot exceed such TOTAL COST. For ready reference and ready illustration, the Form 3CL submitted by the ready reference and ready illustration, the Form 3CL submitted by the ready reference and ready illustration, the Form 3CL submitted by the appellant in its own case for AY 2018 appellant in its own case for AY 2018-19 (post-amendment AY) is amendment AY) is reproduced as under for reproduced as under for better appreciation of the moot point under better appreciation of the moot point under consideration which clearly shows at Point 5(E) of PART consideration which clearly shows at Point 5(E) of PART consideration which clearly shows at Point 5(E) of PART-B-as "R&D Expenditure eligible for deduction u/s 35(2AB)" and NOT the TOTAL Expenditure eligible for deduction u/s 35(2AB)" and NOT the TOTAL Expenditure eligible for deduction u/s 35(2AB)" and NOT the TOTAL COST of in-house research house research-

With this background and to further illustrate, it is mentioned that it is With this background and to further illustrate, it is mentioned that it is With this background and to further illustrate, it is mentioned that it is not the case when the prescribed authority is specifying the TOTAL COST not the case when the prescribed authority is specifying the TOTAL COST not the case when the prescribed authority is specifying the TOTAL COST as, say, Rs. 70 lakhs and then certifying the approved expenditure of, as, say, Rs. 70 lakhs and then certifying the approved expenditure of, as, say, Rs. 70 lakhs and then certifying the approved expenditure of,

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say, Rs.59 lakhs out of such total cos say, Rs.59 lakhs out of such total cost of Rs. 70 lakhs. It is purely a clear t of Rs. 70 lakhs. It is purely a clear case of the prescribed authority certifying the TOTAL COST ITSELF which case of the prescribed authority certifying the TOTAL COST ITSELF which case of the prescribed authority certifying the TOTAL COST ITSELF which is less than the quantum claimed by the assessee is less than the quantum claimed by the assessee-appellant. appellant. At the cost of repetition, it is reiterated that Rs.59.38 lakhs is NOT the At the cost of repetition, it is reiterated that Rs.59.38 lakhs is NOT the At the cost of repetition, it is reiterated that Rs.59.38 lakhs is NOT the expenditure approved by the prescribed authority but the TOTAL COST re approved by the prescribed authority but the TOTAL COST re approved by the prescribed authority but the TOTAL COST specified to be incurred for such research during the captioned period specified to be incurred for such research during the captioned period specified to be incurred for such research during the captioned period which is evidently less than the expenditure claimed by the assessee on which is evidently less than the expenditure claimed by the assessee on which is evidently less than the expenditure claimed by the assessee on such research activities. such research activities. Hence, under such circumstan Hence, under such circumstances, there is no reason to interfere with the ces, there is no reason to interfere with the action of the Ld. action of the Ld. AO in restricting the deduction as per such amount of Rs.59.38 lakhs AO in restricting the deduction as per such amount of Rs.59.38 lakhs AO in restricting the deduction as per such amount of Rs.59.38 lakhs which has been certified to be the Total Cost or Total R&D expenditure by which has been certified to be the Total Cost or Total R&D expenditure by which has been certified to be the Total Cost or Total R&D expenditure by the prescribed authority as per the documents sub the prescribed authority as per the documents submitted by the mitted by the appellant. Accordingly, the ground appellant. Accordingly, the ground-1 does not succeed and is, 1 does not succeed and is, accordingly, DISMISSED. Before parting it is added that the issue has accordingly, DISMISSED. Before parting it is added that the issue has accordingly, DISMISSED. Before parting it is added that the issue has been dealt-with purely on the basis of the peculiar facts of this case, as with purely on the basis of the peculiar facts of this case, as with purely on the basis of the peculiar facts of this case, as above, hence, the legal issues assu above, hence, the legal issues assume academic nature- in light of such in light of such fact based outcome. On the similar lines, the reliance of the appellant on fact based outcome. On the similar lines, the reliance of the appellant on fact based outcome. On the similar lines, the reliance of the appellant on the above mentioned decisions is also not relevant in the peculiar facts the above mentioned decisions is also not relevant in the peculiar facts the above mentioned decisions is also not relevant in the peculiar facts and circumstances of the matter, as elaborated above. and circumstances of the matter, as elaborated above.” 5. Before us, the Ld. Counsel he Ld. Counsel for the assessee filed a Paper Book the assessee filed a Paper Book containing page 1 to 11. The Ld. Counsel containing page 1 to 11. The Ld. Counsel for the assessee referred the assessee referred to the prescribed Form to the prescribed Form No. 3CL issued by the Department of 3CL issued by the Department of Scientific and Industrial Research providing details of total research Scientific and Industrial Research providing details of total research Scientific and Industrial Research providing details of total research and development expenditure which include capital expenditure and development expenditure which include capital expenditure and development expenditure which include capital expenditure (other than the land and building other than the land and building) of Rs.12.64 lakhs and revenue of Rs.12.64 lakhs and revenue expenditure of Rs.46.74 la expenditure of Rs.46.74 lakhs. The Ld. Counsel also referred to the . Counsel also referred to the Auditor certificate and notes to the auditor report uditor certificate and notes to the auditor report uditor certificate and notes to the auditor report along with Director’s Report wherein the expenditure wherein the expenditure on research and development has been claimed to be Rs.62,17,380/-. In support of development has been claimed to be Rs.62,17,380/ development has been claimed to be Rs.62,17,380/ contention that prior to int contention that prior to introduction of the amendment to Rule roduction of the amendment to Rule 6(7A)(b) of the Rules 6(7A)(b) of the Rules, the weighted deduction claimed by the the weighted deduction claimed by the assessee without any quantification by the DSIR was to be allowed assessee without any quantification by the DSIR was assessee without any quantification by the DSIR was

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to the assessee, the Ld. Counsel relied on the decision of the Co he Ld. Counsel relied on the decision of the Co- he Ld. Counsel relied on the decision of the Co ordinate Bench of the Tribun ordinate Bench of the Tribunal, Mumbai Bench in the case of al, Mumbai Bench in the case of Marksans Pharma Ltd. v. DCIT [2023] 155 taxmann.com 59 Marksans Pharma Ltd. v. DCIT [2023] 155 taxmann.com 59 Marksans Pharma Ltd. v. DCIT [2023] 155 taxmann.com 59 (Mumbai-Trib.) and decision of the and decision of the Ahmadabad Bench in the case Bench in the case of Pharmanza Herbal (P.) Ltd. v. DCIT [2023] 155 taxmann.com Pharmanza Herbal (P.) Ltd. v. DCIT [2023] 155 taxmann.com Pharmanza Herbal (P.) Ltd. v. DCIT [2023] 155 taxmann.com 56 (Ahmedabad-Trib.). Trib.).

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research and development expenditure research and development expenditure, whereas in the present case the present case prescribed authority prescribed authority did not alter or reduced any of the R&D any of the R&D expenditure claimed before the said authority. He submitted that He submitted that assessee has not provided details of the difference amount between assessee has not provided details of the difference amount between assessee has not provided details of the difference amount between the expenditure certified and the detail of the expenditure filed the expenditure certified and the detail of the expenditure filed the expenditure certified and the detail of the expenditure filed before the prescribed authority. Further efore the prescribed authority. Further, he submitted , he submitted that if the prescribed was not empowered to examine the prescribed was not empowered to examine the deductibility deductibility of the expenses u/s 35(2)(AB) of the Act expenses u/s 35(2)(AB) of the Act, then the assessee was required then the assessee was required to to to provide provide provide entire entire entire details details details of of of the the the expenses expenses expenses amounting amounting amounting to to to Rs.62,17,380/- before the Assessing Officer for verifying w before the Assessing Officer for verifying whether before the Assessing Officer for verifying w same were incurred f were incurred for the purpose of section 35(2 or the purpose of section 35(2AB) of the Act, but no such details had but no such details had been provided by the assessee before the been provided by the assessee before the lower authorities and therefore, the Assessing Officer has lower authorities and therefore, the Assessing Officer has lower authorities and therefore, the Assessing Officer has reasonably and generously restricted the claim of the assessee u/s reasonably and generously restricted the claim of the assessee u/s reasonably and generously restricted the claim of the assessee u/s 35(2AB) of the Act to the extent of the AB) of the Act to the extent of the quantum of the expenses of the expenses filed before the prescribed authority. filed before the prescribed authority.

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“(1) Where a company engaged in the business of bio “(1) Where a company engaged in the business of bio-technology or in technology or in any business of manufacture or production of any article or thing, not any business of manufacture or production of any article or thing, not any business of manufacture or production of any article or thing, not being an article or thing specified being an article or thing specified in the list of the Eleventh Schedule]] in the list of the Eleventh Schedule]] incurs any expenditure on scientific research (not being expenditure in incurs any expenditure on scientific research (not being expenditure in incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in the nature of cost of any land or building) on in-house research and house research and development facility as approved by the prescribed authority, then, there development facility as approved by the prescribed authority, then, there development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one hall be allowed a deduction of a sum equal to one and one hall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred. the expenditure so incurred. Explanation.--For the purposes of this clause, "expenditure on scientific For the purposes of this clause, "expenditure on scientific For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include research", in relation to drugs and pharmaceuticals, shall include research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any curred on clinical drug trial, obtaining approval from any curred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or regulatory authority under any Central, State or Provincial Act Provincial Act and filing an application for a patent under the an application for a patent under the Patents Act, 1970 (39 of 1970).” , 1970 (39 of 1970).” 7.1 Further, the relevant rules Further, the relevant rules under Income-tax Rules, 1962 in tax Rules, 1962 in short ‘the Rules’) prescribed in relation to sec prescribed in relation to section 35(2 tion 35(2AB) of the Act are also reproduced as under: also reproduced as under:

"(1B) For the purposes of sub "(1B) For the purposes of sub-section (2AB) of section 35, the prescribed , the prescribed authority shall be the Secretary, Department of Scientific and Industrial authority shall be the Secretary, Department of Scientific and Industrial authority shall be the Secretary, Department of Scientific and Industrial Research."; "(4) The application required to be furnished by a company under sub "(4) The application required to be furnished by a company under sub "(4) The application required to be furnished by a company under sub- section(2AB) of of section 35 shall be in Form No.3CK."; "(5A) The prescribed authority shall, if he is satisfied that the conditions "(5A) The prescribed authority shall, if he is satisfied that the conditions "(5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub provided in this rule and in sub-section (2AB) of section 35 of the Act are section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3 CM: pass an order in writing in Form No. 3 CM: Provided that a reasonable opportunity of being heard shall be granted to Provided that a reasonable opportunity of being heard shall be granted to Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application. the company before rejecting an application. "(7A) Approval of expenditure incurred on in "(7A) Approval of expenditure incurred on in-house research and house research and development facility by a comp development facility by a company under sub-section (2AB) of section (2AB) of section 35 shall be subject to the following conditions, namely: shall be subject to the following conditions, namely:- (a) The facility should not relate purely to market research, sales (a) The facility should not relate purely to market research, sales (a) The facility should not relate purely to market research, sales promotion, quality control, testing, com promotion, quality control, testing, commercial production, style changes, mercial production, style changes, routine data collection or activities of a like nature; routine data collection or activities of a like nature; (b) The prescribed. authority shall submit its report in relation to the (b) The prescribed. authority shall submit its report in relation to the (b) The prescribed. authority shall submit its report in relation to the approval of inhouse Research and Development facility in Form No. 3CL approval of inhouse Research and Development facility in Form No. 3CL approval of inhouse Research and Development facility in Form No. 3CL to the Director Genera to the Director General (Income Tax Exemptions) within sixty days of its l (Income Tax Exemptions) within sixty days of its granting approval; granting approval; (c) The company shall maintain a separate account for each approved (c) The company shall maintain a separate account for each approved (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall be facility; which shall be audited annually and a copy thereof shall be facility; which shall be audited annually and a copy thereof shall be furnished to the Secretary, Department of furnished to the Secretary, Department of Scientific and Industrial Scientific and Industrial Research by 31st day of October of each succeeding year; Research by 31st day of October of each succeeding year; Explanation:-For the purposes of this sub For the purposes of this sub-rule the expression "audited" rule the expression "audited" means the audit of accounts by an accountant, as defined in the means the audit of accounts by an accountant, as defined in the means the audit of accounts by an accountant, as defined in the

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Explanation below sub Explanation below sub- section (2) of section 288 of the Income of the Income-tax Act, 1961. (d) Assets acquired in respect of development of scientific research and (d) Assets acquired in respect of development of scientific research and (d) Assets acquired in respect of development of scientific research and development facility shall not be disposed off without the approval of the development facility shall not be disposed off without the approval of the development facility shall not be disposed off without the approval of the Secretary, Depa Secretary, Department of Scientific and Industrial Research" rtment of Scientific and Industrial Research" 7.3 Further, the said Rule 6(7A) of Further, the said Rule 6(7A) of ‘the Rules’ has been amended has been amended w.e.f. 01.07.2016, whereby it has been laid down that the whereby it has been laid down that the prescribed authority i.e. DSIR shall prescribed authority i.e. DSIR shall quantify expenditure incurred quantify expenditure incurred on in-house research house research and development facility by the and development facility by the assessee during the previous year during the previous year, which is eligible for weighted deduction eligible for weighted deduction u/s 35(2)(AB) of the Act u/s 35(2)(AB) of the Act , in part-B of Form No. 3CL B of Form No. 3CL. Prior to aforesaid amendment aforesaid amendment, the provision of Rule 6(7A) of the Rules the provision of Rule 6(7A) of the Rules merely provided that merely provided that the prescribed authority shall submit its the prescribed authority shall submit its report in relation to the approval of report in relation to the approval of in-house R&D facility in Form house R&D facility in Form No. 3CL to the Director General of Income No. 3CL to the Director General of Income-tax (Exemption) within tax (Exemption) within 60 days of its granting approval. In the case of 60 days of its granting approval. In the case of Marksans Pharma Marksans Pharma Ltd. (supra), the Tribunal is of the view that prior to 01.07.2016 the Tribunal is of the view that prior to 01.07.2016 the Tribunal is of the view that prior to 01.07.2016 there was no legal sanctity for Form No. 3CL in context of there was no legal sanctity for Form No. 3CL in context of there was no legal sanctity for Form No. 3CL in context of quantifying eligible deduction weighted u/s 35(2)(AB) of the Act. The quantifying eligible deduction weighted u/s 35(2)(AB) of the Act. The quantifying eligible deduction weighted u/s 35(2)(AB) of the Act. The Tribunal further relied on the decision of the Co Tribunal further relied on the decision of the Co-ordinate Bench in ordinate Bench in the case of Cummins Cummins India Ltd. v. DCIT (2018) 96 taxmann.com India Ltd. v. DCIT (2018) 96 taxmann.com 576 (Pune-Trib.), wherein it is held that there is no merit in the wherein it is held that there is no merit in the wherein it is held that there is no merit in the order of the Assessing Officer in curtailing the expenditure and order of the Assessing Officer in curtailing the expenditure and order of the Assessing Officer in curtailing the expenditure and consequent weighted deduction claimed u/s 35(2)(AB) of the Act on consequent weighted deduction claimed u/s 35(2)(AB) of the Act on consequent weighted deduction claimed u/s 35(2)(AB) of the Act on the surmise that surmise that prescribed has not approved has not approved par of the expenditure in Form No. 3CL. The relevant finding of the Co- expenditure in Form No. 3CL. The relevant finding of the Co expenditure in Form No. 3CL. The relevant finding of the Co

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ordinate Bench in the case of Cummins India Ltd. (supra India Ltd. (supra) is ordinate Bench in the case reproduced as under: :

"45. The issue which is raised in the present appeal is that "45. The issue which is raised in the present appeal is that "45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is where the facility has been recognized and necessary certification is where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction issued by the prescribed authority, the assessee can avail the deduction issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in in respect of expenditure incurred on in-house R&D facility, for which the house R&D facility, for which the adjudicating authority is the adjudicating authority is the Assessing Officer and whether the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year prescribed authority is to approve expenditure in form No.3CL from year prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit to year. Looking into the provisions of rules, it stipulates the filing of audit to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the report before the prescribed authority by the persons availing the report before the prescribed authority by the persons availing the deduction under eduction under section 35(2AB) of the Act but the provisions of the Act of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the do not prescribe any methodology of approval to be granted by the do not prescribe any methodology of approval to be granted by the prescribed authority vis prescribed authority vis-à-vis expenditure from year to year. The vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. mendment brought in by the IT (Tenth Amendment) Rules w.e.f. mendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the 01.07.2016, wherein separate part has been inserted for certifying the 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL amount of expenditure from year to year and the amended form No.3CL amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the pres thus, lays down the procedure to be followed by the prescribed authority. cribed authority. Prior to the aforesaid amendment in 2016, no such procedure / Prior to the aforesaid amendment in 2016, no such procedure / Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no methodology was prescribed. In the absence of the same, there is no methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and merit in the order of Assessing Officer in curtailing the expenditure and merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction clai consequent weighted deduction claim under section 35(2AB) section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of on the surmise that prescribed authority has only approved part of on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of expenditure in form No.3CL. We find no merit in the said order of expenditure in form No.3CL. We find no merit in the said order of authorities below." authorities below." 7.4 The Tribunal in the case of Marksans Pharma Ltd. (supra) in the case of Marksans Pharma Ltd. (supra) in the case of Marksans Pharma Ltd. (supra) further noted that Co Co-ordinate Bench of the Tribunal in the case of ordinate Bench of the Tribunal in the case of Cummins India Ltd. (supra) held that for deduction u/s 35(2)(AB) India Ltd. (supra) held that for deduction u/s 35(2)(AB) India Ltd. (supra) held that for deduction u/s 35(2)(AB) of the Act, the first step was the recognition of the facility by the the first step was the recognition of the facility by the the first step was the recognition of the facility by the prescribed authority and entering an agreement between the facility bed authority and entering an agreement between the facility bed authority and entering an agreement between the facility and the prescribed authority and the prescribed authority. It was also held that once an t was also held that once an agreement has been executed under which recognition has been agreement has been executed under which recognition has been agreement has been executed under which recognition has been given to the facility, then thereafter the role of the Assessing Officer , then thereafter the role of the Assessing Officer , then thereafter the role of the Assessing Officer is to look into and allow s to look into and allow the expenditure incurred on in the expenditure incurred on in-house R&D facility as weighted deduction u/s 35(2)(AB) of the Act. Thus the facility as weighted deduction u/s 35(2)(AB) of the Act. Thus the facility as weighted deduction u/s 35(2)(AB) of the Act. Thus the Tribunal held that prior to amendment the assessee is entitled to Tribunal held that prior to amendment the assessee is entitled to Tribunal held that prior to amendment the assessee is entitled to

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weighted deduction u/s 35(2)(AB) of the Act weighted deduction u/s 35(2)(AB) of the Act subject verifi subject verification by the AO and there is no require and there is no requirement that expenditure expenditure also need to approved by the DSIR DSIR in Form No. 3CL.

7.5 We find that in the instant case, the prescribed authority has We find that in the instant case, the prescribed authority has We find that in the instant case, the prescribed authority has not altered or quantified the expenses for approval towards in- not altered or quantified the expenses for approval towards not altered or quantified the expenses for approval towards house research research and and development development facility, facility but but has has merely merely reproduced the expenses which have been claimed by the assessee expenses which have been claimed by the assessee expenses which have been claimed by the assessee as incurred towards research and development expenditure as incurred towards research and development expenditure as incurred towards research and development expenditure including capital and revenue including capital and revenue expenditure. The assessee in its audit he assessee in its audit report has claimed the ed the total expenditure on in- house research facility amounting to Rs.62,17,380/ amounting to Rs.62,17,380/- . As far as claim of ca claim of capital expenditure is concerned, t expenditure is concerned, there is no dispute between the auditor here is no dispute between the auditor and the prescribed authority and the prescribed authority but, in respect of revenue expenditure , in respect of revenue expenditure, in the annexure to director report along with auditor certificate nexure to director report along with auditor certificate nexure to director report along with auditor certificate revenue/recurring expenses has been shown at Rs.49 expenses has been shown at Rs.49 lakhs expenses has been shown at Rs.49 whereas revenue expenditure claimed before the prescribed whereas revenue expenditure claimed before the prescribed whereas revenue expenditure claimed before the prescribed authorities only was of was of Rs.46.74 lakhs only. The Ld. Arguing The Ld. Arguing Counsel was asked to pr Counsel was asked to provide details of the difference ovide details of the difference of Rs.2,79,380/- between between revenue expenditure certified by the auditor revenue expenditure certified by the auditor and the revenue expenditure claimed before the prescribed and the revenue expenditure claimed before the prescribed and the revenue expenditure claimed before the prescribed authority but no such details were either filed before the lower authority but no such details were either filed before the lower authority but no such details were either filed before the lower authorities or before us. In a authorities or before us. In absence of any such details, the action bsence of any such details, the action of the lower authorities in disallowing the weighted deduction of the lower authorities in disallowing the weighted deduction of the lower authorities in disallowing the weighted deduction corresponding to the said amount is justified and accordingly, the corresponding to the said amount is justified and according corresponding to the said amount is justified and according

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contentions of the assessee are rejected. The case laws relied upon of the assessee are rejected. The case laws relied upon of the assessee are rejected. The case laws relied upon by the assessee are not applicable to the facts of the case as in not applicable to the facts of the case as in those cases the prescribed authority has quantified research and those cases the prescribed authority has quantified research and those cases the prescribed authority has quantified research and development expense for the assessment year prior to the development expense for the assessment year prior development expense for the assessment year prior amendment in the rules, w amendment in the rules, whereas in the instant case the prescribed hereas in the instant case the prescribed authority has approv authority has approved entire expenses claimed by the assessee expenses claimed by the assessee itself. In our opinion, the finding of ld CIT(A) on the issue in . In our opinion, the finding of ld CIT(A) on the issue in . In our opinion, the finding of ld CIT(A) on the issue in dispute is justified and no interference is required at our end, dispute is justified and no interference is required at our end, dispute is justified and no interference is required at our end, accordingly, we uphold the same. T accordingly, we uphold the same. The Ground Nos. 1 and 2 of the . 1 and 2 of the appeal of the assessee are accordingly dismissed. ssee are accordingly dismissed.

8.1 The Ld. CIT(A) has considered the contention of the assessee The Ld. CIT(A) has considered the contention of the assessee The Ld. CIT(A) has considered the contention of the assessee regarding the alternative claim but rejected observing as under: regarding the alternative claim but rejected observing as under: regarding the alternative claim but rejected observing as under:

“7.1 The matter has been examined. The alternate contention of the 7.1 The matter has been examined. The alternate contention of the 7.1 The matter has been examined. The alternate contention of the appellant is that the differential amount of Rs.279380/ appellant is that the differential amount of Rs.279380/- which had not which had not been allowed u/s 35(2AB) of the Act ought to have been allowed either as been allowed u/s 35(2AB) of the Act ought to have been allowed either as been allowed u/s 35(2AB) of the Act ought to have been allowed either as per the provisions of section 35(1) or the pro per the provisions of section 35(1) or the provisions of section 37 of the visions of section 37 of the Act. However, it is noted that such an alternate contention suffers from Act. However, it is noted that such an alternate contention suffers from Act. However, it is noted that such an alternate contention suffers from several shortcomings/infirmities, thus making it far short of merit for several shortcomings/infirmities, thus making it far short of merit for several shortcomings/infirmities, thus making it far short of merit for consideration. It is not apparently discernible if the appellant had taken consideration. It is not apparently discernible if the appellant had taken consideration. It is not apparently discernible if the appellant had taken such contentions before the Ld. AO during the subject ntentions before the Ld. AO during the subject-assessment ntentions before the Ld. AO during the subject proceedings and if not, then the reasons for such omissions have also proceedings and if not, then the reasons for such omissions have also proceedings and if not, then the reasons for such omissions have also NOT been specified in the present appellate proceedings while making NOT been specified in the present appellate proceedings while making NOT been specified in the present appellate proceedings while making such alternate contentions/claims. Thus, in case the same i such alternate contentions/claims. Thus, in case the same is true, then at s true, then at the inception stage itself such alternate contentions fail for consideration the inception stage itself such alternate contentions fail for consideration the inception stage itself such alternate contentions fail for consideration by virtue of the appellant's own conduct, as mentioned above by virtue of the appellant's own conduct, as mentioned above by virtue of the appellant's own conduct, as mentioned above Without prejudice to the above, it is mentioned that such alternate Without prejudice to the above, it is mentioned that such alternate Without prejudice to the above, it is mentioned that such alternate contention is not legally tenable. contention is not legally tenable. To explain this point, it would be gainful To explain this point, it would be gainful

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here to reproduce a relevant extract of the provisions of section 37 of the here to reproduce a relevant extract of the provisions of section 37 of the here to reproduce a relevant extract of the provisions of section 37 of the Act, as under (emphasis supplied) Act, as under (emphasis supplied)- 37. Any 37. Any expenditure (not being expenditure of the nature expenditure (not being expenditure of the nature described described in sections 30 to 361. and not being in the nature of ng in the nature of capial expenditure or personal capial expenditure or personal expenses assessee), laid out or assessee), laid out or expended wholly and exclusively for the purposes of the business expended wholly and exclusively for the purposes of the business expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income or profession shall be allowed in computing the income or profession shall be allowed in computing the income chargeable under the head "Profits and gains of busin chargeable under the head "Profits and gains of busin chargeable under the head "Profits and gains of business or profession. profession. A mere perusal of the provisions of section 37 clearly bars allowing any A mere perusal of the provisions of section 37 clearly bars allowing any A mere perusal of the provisions of section 37 clearly bars allowing any expenditure in the nature of the expenditure described in sections 30 to expenditure in the nature of the expenditure described in sections 30 to expenditure in the nature of the expenditure described in sections 30 to 36 of the Act which also include the expenditure specified in section 36 of the Act which also include the expenditure specified in section 36 of the Act which also include the expenditure specified in section 35(2AB) of the Act. 35(2AB) of the Act. It is a trite law that when a specific provision is It is a trite law that when a specific provision is stipulated then alternatively a general provision cannot be resorted to. stipulated then alternatively a general provision cannot be resorted to. stipulated then alternatively a general provision cannot be resorted to. The provisions of section 37 of the Act unambiguously cater to such The provisions of section 37 of the Act unambiguously cater to such The provisions of section 37 of the Act unambiguously cater to such expenditure which is not specifically provided for/mentioned in expenditure which is not specifically provided for/mentioned in expenditure which is not specifically provided for/mentioned in the provisions of sections 30 to 36 of the Act. If the alternate contention of the provisions of sections 30 to 36 of the Act. If the alternate contention of the provisions of sections 30 to 36 of the Act. If the alternate contention of the appellant is accepted then it will make the provisions of section 30 to 36 appellant is accepted then it will make the provisions of section 30 to 36 appellant is accepted then it will make the provisions of section 30 to 36 of the Act redundant. Same discussion holds true for the provisions of of the Act redundant. Same discussion holds true for the provisions of of the Act redundant. Same discussion holds true for the provisions of section 35(1) vis section 35(1) vis-a-vis the provisions of section 35(2AB) of the Act as e provisions of section 35(2AB) of the Act as undisputedly these provisions clearly stipulate the specifics of the undisputedly these provisions clearly stipulate the specifics of the undisputedly these provisions clearly stipulate the specifics of the expenditure that would be covered within their respective ambits. expenditure that would be covered within their respective ambits. expenditure that would be covered within their respective ambits. Inter-sections fungibility of expenditure is not provided within all these sections fungibility of expenditure is not provided within all these sections fungibility of expenditure is not provided within all these provisions of the Act. provisions of the Act. In addition to this and without prejudice to the above two issues, it is In addition to this and without prejudice to the above two issues, it is In addition to this and without prejudice to the above two issues, it is relevant here to reiterate, as elaborated in earlier part of this order, that relevant here to reiterate, as elaborated in earlier part of this order, that relevant here to reiterate, as elaborated in earlier part of this order, that the quantum of the deduction claimed u/s 35(2AB) by the assessee in the the quantum of the deduction claimed u/s 35(2AB) by the assessee in the the quantum of the deduction claimed u/s 35(2AB) by the assessee in the present matter is higher than the "TOTAL COST" certified by the tter is higher than the "TOTAL COST" certified by the tter is higher than the "TOTAL COST" certified by the Prescribed Authority for the same underlying research activities. It is Prescribed Authority for the same underlying research activities. It is Prescribed Authority for the same underlying research activities. It is added that even though the assessee added that even though the assessee-appellant had made such claim but appellant had made such claim but it had not even provided any details of this balance expendi it had not even provided any details of this balance expendi it had not even provided any details of this balance expenditure of Rs.279380/- in terms of its nature viz., whether for manpower expenses, in terms of its nature viz., whether for manpower expenses, in terms of its nature viz., whether for manpower expenses, material expenses, fees, etc. It is incorrect to assume that the provisions material expenses, fees, etc. It is incorrect to assume that the provisions material expenses, fees, etc. It is incorrect to assume that the provisions of sections 35(2AB), 35(1) and 37 of the Act operate on the same plane as of sections 35(2AB), 35(1) and 37 of the Act operate on the same plane as of sections 35(2AB), 35(1) and 37 of the Act operate on the same plane as far as allowability of exp far as allowability of expenses is concerned and same would get enses is concerned and same would get automatically allowed by merely making a claim without any supporting automatically allowed by merely making a claim without any supporting automatically allowed by merely making a claim without any supporting relevant details/evidences. The assessee ought to have substantiated relevant details/evidences. The assessee ought to have substantiated relevant details/evidences. The assessee ought to have substantiated such claim/s by providing specific details and cogent evidences as per such claim/s by providing specific details and cogent evidences as per such claim/s by providing specific details and cogent evidences as per the requirements of the respective specific section/s and also to show irements of the respective specific section/s and also to show irements of the respective specific section/s and also to show that any component of such balance expenditure is not hit by the that any component of such balance expenditure is not hit by the that any component of such balance expenditure is not hit by the provisions of section 40,40A, 43B,etc. of the Act. In other words. it cannot provisions of section 40,40A, 43B,etc. of the Act. In other words. it cannot provisions of section 40,40A, 43B,etc. of the Act. In other words. it cannot be assumed that an expense which is allowable u/s 3 be assumed that an expense which is allowable u/s 35(2AB) of the Act 5(2AB) of the Act would automatically and seamlessly stand allowable u/s 35(1) or section would automatically and seamlessly stand allowable u/s 35(1) or section would automatically and seamlessly stand allowable u/s 35(1) or section 37 of the Act merely by 37 of the Act merely by virtue of its being allowable u/s 35(2AB). Further, virtue of its being allowable u/s 35(2AB). Further, if the expenses are liable for TDS, then allowability of such expenses if the expenses are liable for TDS, then allowability of such expenses if the expenses are liable for TDS, then allowability of such expenses would be subjected would be subjected to provisions of section 40 of the Act. These are just a few illustrations to highlight that the alternate contention These are just a few illustrations to highlight that the alternate contention These are just a few illustrations to highlight that the alternate contention of the appellant to automatically allow the balance amount of of the appellant to automatically allow the balance amount of of the appellant to automatically allow the balance amount of Rs.279380/- either u/s 35(1) or u/s 37 of the Act totally lacks merit for either u/s 35(1) or u/s 37 of the Act totally lacks merit for either u/s 35(1) or u/s 37 of the Act totally lacks merit for consideration.

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Considering the above discussion, the alternate contention cannot be Considering the above discussion, the alternate contention cannot be Considering the above discussion, the alternate contention cannot be accepted and the accordingly, the ground accepted and the accordingly, the ground-2 is DISMISSED.” 8.2 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. In Ground dispute and perused the relevant material on recor dispute and perused the relevant material on recor raised, the assessee has the assessee has raised that in respect of amount of that in respect of amount of Rs.2,79,380/- the lower authorities have not allowed the deduction the lower authorities have not allowed the deduction the lower authorities have not allowed the deduction u/s 35(2)(AB) of the Act and therefore, alternatively the said u/s 35(2)(AB) of the Act and therefore, alternatively the said u/s 35(2)(AB) of the Act and therefore, alternatively the said amount should be considered for deduction u/s 35(1) of section 37 amount should be considered for deduction u/s 35(1) amount should be considered for deduction u/s 35(1) of the Act. The Ld. CIT(A) has declined the relief to the assessee of the Act. The Ld. CIT(A) has declined the relief to the assessee of the Act. The Ld. CIT(A) has declined the relief to the assessee mainly for the reasons mainly for the reasons firstly, no such contentions were taken no such contentions were taken before the AO, secondly secondly expenditure dealt u/s 35(2AB) (2AB) cannot be claimed u/s 37(1) or 35(1) or 35(1) of the Act, thirdly, the cost claimed is , the cost claimed is higher than total cost certified by the DSIR, higher than total cost certified by the DSIR, fourthly fourthly, no details of the expenditure had been provided, the expenditure had been provided, lastly, the allowability allowability of the balance expenditure was to be balance expenditure was to be tested applying other provisions of other provisions of the Act such as 40, 40A, 43B 40, 40A, 43B etc.

8.3 Before us, the Ld. Counsel Before us, the Ld. Counsel for the assessee has submitted that the assessee has submitted that total expenditure has been certified by the statutory and auditor total expenditure has been certified by the statutory and auditor total expenditure has been certified by the statutory and auditor also in the audit report u/s 35(2)(AB) of the Act and the auditor has also in the audit report u/s 35(2)(AB) of the Act and the auditor has also in the audit report u/s 35(2)(AB) of the Act and the auditor has also certified compliance with other provisions of the Act i.e. section also certified compliance with other provisions of the Act i.e. section also certified compliance with other provisions of the Act i.e. section 43AB of the Act. He submitted that expenditure remains in the . He submitted that expenditure remains in the . He submitted that expenditure remains in the genre of the expenditure of the expenditure on scientific research only only and additional attributes there of entitled for deduction u/s 35(2)(AB) of the Act entitled for deduction u/s 35(2)(AB) of the Act entitled for deduction u/s 35(2)(AB) of the Act and therefore, expenditure is allowable for deduction either u/s and therefore, expenditure is allowable for deduction either u/s and therefore, expenditure is allowable for deduction either u/s 35(1) of the Act or section 37 of the Act. The Ld. Counsel in support the Act or section 37 of the Act. The Ld. Counsel in support the Act or section 37 of the Act. The Ld. Counsel in support

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of relied on the decision of the Mahindra Two wheelers Ltd vs Mahindra Two wheelers Ltd vs of relied on the decision of the DCIT in ITA No. 519/Mum/2018. in ITA No. 519/Mum/2018.

8.4 During the course of hearing During the course of hearing, the assessee was asked to the assessee was asked to provide the details of the expenditure of provide the details of the expenditure of Rs.2,79,380/ Rs.2,79,380/- which has been claimed for alterative deduction u/s 37 or 35(1) of the Act, been claimed for alterative deduction u/s 37 or 35(1) of the Act been claimed for alterative deduction u/s 37 or 35(1) of the Act however, the assessee failed to provide any such details of the said owever, the assessee failed to provide any such details of the said owever, the assessee failed to provide any such details of the said expenses. Though the assessee has claimed that entire expenses Though the assessee has claimed that entire expenses Though the assessee has claimed that entire expenses debited to profit and loss accou debited to profit and loss account including expenses attributable to nt including expenses attributable to in-house research facility have been duly audited by an Auditor , house research facility have been duly audited by an Auditor , house research facility have been duly audited by an Auditor , but in our opinion n our opinion , the Assessing Officer under the scrutiny , the Assessing Officer under the scrutiny assessment procedure is duly authorised to examine and verify assessment procedure is duly authorised to examine and verify assessment procedure is duly authorised to examine and verify those expenses and those expenses and without any details of the expenditure, the ny details of the expenditure, the Assessing Officer cannot examine the allowability of the claim u/s Assessing Officer cannot examine the allowability of the claim u/s Assessing Officer cannot examine the allowability of the claim u/s 35(1) or 37 of the Act 35(1) or 37 of the Act irrespective of the fact that the expenses the expenses had certified by the auditor certified by the auditor. In absence of identification of the said In absence of identification of the said expenses of Rs.2,79,380/ ,79,380/-, the action of ld CIT(A) in disallowing the in disallowing the alternative deduction claimed is justified. The ground No. 3 of the deduction claimed is justified. The ground No. 3 of the deduction claimed is justified. The ground No. 3 of the appeal of the assessee is accordingly dismissed. appeal of the assessee is accordingly dismissed.

Deepak Novochem 18 ITA Nos. 2558 to 2562/Mum/2023 ITA Nos. 2558 to 2562/Mum/2023

9.1 We have heard rival submission of the parties o We have heard rival submission of the parties o We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The dispute and perused the relevant material on record. The dispute and perused the relevant material on record. The contention of the assessee is for setting off of the brought forward contention of the assessee is for setting off of the brought forward contention of the assessee is for setting off of the brought forward losses against profit and gains or business or profession for the year losses against profit and gains or business or profession f losses against profit and gains or business or profession f under consideration which the assessee is under consideration which the assessee is eligible igible irrespective whether the final income has been taxed under the MAT provisions whether the final income has been taxed under the MAT provisions whether the final income has been taxed under the MAT provisions or under the regular provisions of the Act. Accordingly, we direct or under the regular provisions of the Act. Accordingly, we direct or under the regular provisions of the Act. Accordingly, we direct the Assessing Officer to consider the said setting off of brought the Assessing Officer to consider the said setting off the Assessing Officer to consider the said setting off forward losses in accordance accordance with law. The ground The ground No. 4 of appeal of the assessee is accordingly allowed for statistical purposes. of the assessee is accordingly allowed for statistical purposes. of the assessee is accordingly allowed for statistical purposes.

11.1 The ground No. 4 The ground No. 4, in assessment year 2015-16 and 2016 16 and 2016-17 relates to initiation of penalty proceedings u/s 271(1)(c) of the Act, relates to initiation of penalty proceedings u/s 271(1)(c) of the Act relates to initiation of penalty proceedings u/s 271(1)(c) of the Act which being premature at this stage, same are dismissed as premature at this stage, same are dismissed as premature at this stage, same are dismissed as infructuous.

Deepak Novochem 19 ITA Nos. 2558 to 2562/Mum/2023 ITA Nos. 2558 to 2562/Mum/2023

“Disallowance of deduction under section 35(2AB) Disallowance of deduction under section 35(2AB) 1. On the facts and in the circumstances of the case and in law, both the 1. On the facts and in the circumstances of the case and in law, both the 1. On the facts and in the circumstances of the case and in law, both the Ld. Commissioner of Income Commissioner of Income-tax (Appeals), ("CIT(AY) and the Ld. tax (Appeals), ("CIT(AY) and the Ld. Assessing Officer ('AO") erred in not allowing deduction under section Assessing Officer ('AO") erred in not allowing deduction under section Assessing Officer ('AO") erred in not allowing deduction under section 35(1) or section 37 of the Income Tax Act, 1961 ('Act') for the expenditure 35(1) or section 37 of the Income Tax Act, 1961 ('Act') for the expenditure 35(1) or section 37 of the Income Tax Act, 1961 ('Act') for the expenditure of Rs. 2,54,837, not considered for the purposes of granting weighted of Rs. 2,54,837, not considered for the purposes of granting weighted of Rs. 2,54,837, not considered for the purposes of granting weighted deduction under section deduction under section 35(2AB) of the Act, without appreciating that the appreciating that the said expenditure has not lost its c said expenditure has not lost its character either as expenditure on haracter either as expenditure on scientific research or as business expenditure incurred wholly and scientific research or as business expenditure incurred wholly and scientific research or as business expenditure incurred wholly and exclusively for the purposes of business of the Appellant. exclusively for the purposes of business of the Appellant. Levy of interest under section 234A of the Act Levy of interest under section 234A of the Act 2. On the facts and in the circumstances of the c 2. On the facts and in the circumstances of the case and in law, the Ld. ase and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO to levy interest of Rs. CIT(A) erred in upholding the action of the Ld. AO to levy interest of Rs. CIT(A) erred in upholding the action of the Ld. AO to levy interest of Rs. 61,670 under section 234A of the Act, without appreciating the fact that 61,670 under section 234A of the Act, without appreciating the fact that 61,670 under section 234A of the Act, without appreciating the fact that the Appellant duly filed its return of income in response to notice under the Appellant duly filed its return of income in response to notice under the Appellant duly filed its return of income in response to notice under section 153A for other block AYs 2013 3A for other block AYs 2013-14 to 2016-17 & AY 17 & AY 2018-19 in time, however, due to technical error, the Appellant could not upload the time, however, due to technical error, the Appellant could not upload the time, however, due to technical error, the Appellant could not upload the return for the year under appeal, for which the Appellant raised a return for the year under appeal, for which the Appellant raised a return for the year under appeal, for which the Appellant raised a grievance and after resolution of the grievance, the retu grievance and after resolution of the grievance, the return of income could rn of income could be filed on March 9, 2020. be filed on March 9, 2020. Addition of excess set Addition of excess set-off of brought forward losses. 3. On the facts and in the circumstances of the case, and in law, the Ld. 3. On the facts and in the circumstances of the case, and in law, the Ld. 3. On the facts and in the circumstances of the case, and in law, the Ld. AO erred in adding the alleged excess set AO erred in adding the alleged excess set-off of brought forward business off of brought forward business losses of AY 2012 f AY 2012-13 (Rs. 68,51,063), AY 2014-15 (Rs. 1,09,789) and AY 15 (Rs. 1,09,789) and AY 2015-16 (Rs. 18,54,948), to the taxable income of the Appellant. 16 (Rs. 18,54,948), to the taxable income of the Appellant. 16 (Rs. 18,54,948), to the taxable income of the Appellant. Initiation of penalty proceedings Initiation of penalty proceedings 4. On the facts and in the circumstances of the case, and in law, the Ld. 4. On the facts and in the circumstances of the case, and in law, the Ld. 4. On the facts and in the circumstances of the case, and in law, the Ld. AO erred in initiati AO erred in initiating penalty proceedings under section 270A(2) of the ng penalty proceedings under section 270A(2) of the Act, without appreciating that while filing return of income on October 28, Act, without appreciating that while filing return of income on October 28, Act, without appreciating that while filing return of income on October 28, 2017, amount of expenditure granted by the Department of Scientific and 2017, amount of expenditure granted by the Department of Scientific and 2017, amount of expenditure granted by the Department of Scientific and Industrial Research ("DSIR') in Form No. Industrial Research ("DSIR') in Form No. 3CL was not ava 3CL was not available with the Appellant, which was issued only on ilable with the Appellant, which was issued only on October 1, 2018. October 1, 2018. Levy of interest under section 234B of the Act Levy of interest under section 234B of the Act 5. On the facts and in the circumstances of the case, and in law, the Ld. 5. On the facts and in the circumstances of the case, and in law, the Ld. 5. On the facts and in the circumstances of the case, and in law, the Ld. AO erred in levying interest u/s 234B of the Act. levying interest u/s 234B of the Act. 13. The ground No. 1 raised in appeal for alternative claim of the o. 1 raised in appeal for alternative claim of the o. 1 raised in appeal for alternative claim of the deduction u/s 35(1) and 37(1) of the Act in relation to expenditure u/s 35(1) and 37(1) of the Act in relation to expenditure u/s 35(1) and 37(1) of the Act in relation to expenditure of Rs.2,54,837/- which which had been claimed u/s 36(2)(AB) of the Act claimed u/s 36(2)(AB) of the Act by the assessee but denied by the AO but denied by the AO. Since, the identical ground Since, the identical ground has been dismissed while adjudicating app has been dismissed while adjudicating appeal for assessment year eal for assessment year

Deepak Novochem 20 ITA Nos. 2558 to 2562/Mum/2023 ITA Nos. 2558 to 2562/Mum/2023

2014-15, therefore, this ground of appeal of the assessee is also therefore, this ground of appeal of the assessee is also therefore, this ground of appeal of the assessee is also dismissed.

“18.1 The matter has been examined and it is noted that The matter has been examined and it is noted that undisputedly the ground solely relates to the issue of very levy of interest u/s 234A of the ground solely relates to the issue of very levy of interest u/s 234A of the ground solely relates to the issue of very levy of interest u/s 234A of the Act. In this respect it is mentioned that the Act. In this respect it is mentioned that- as regards levy of interest as regards levy of interest under section 234A, 234B and 234C of the Act, there cannot be second under section 234A, 234B and 234C of the Act, there cannot be second under section 234A, 234B and 234C of the Act, there cannot be second opinion that such levy opinion that such levy is mandatory and automatic as per the respective is mandatory and automatic as per the respective provisions of the Act. The Hon'ble Apex Court in the case of CIT Vs. provisions of the Act. The Hon'ble Apex Court in the case of CIT Vs. provisions of the Act. The Hon'ble Apex Court in the case of CIT Vs. Anjum M.H. Ghaswala Anjum M.H. Ghaswala (2001) 252 ITR 1 (SC) has held that- 26.... Sections 234A, 2348 and 234C in clear terms impose a mandate Sections 234A, 2348 and 234C in clear terms impose a mandate Sections 234A, 2348 and 234C in clear terms impose a mandate to collect to collect interest at the rates stipulated therein. The expression interest at the rates stipulated therein. The expression 'shall' used in the said section cannot by any stretch of 'shall' used in the said section cannot by any stretch of 'shall' used in the said section cannot by any stretch of imagination be construed as imagination be construed as 'may. There are sufficient indications 'may. There are sufficient indications in the scheme of the Act to show that the expression 'shall' used in the scheme of the Act to show that the expression 'shall' used in the scheme of the Act to show that the expression 'shall' used in secti in sections 234A, 234B and 234C is used by the Legislature ons 234A, 234B and 234C is used by the Legislature deliberately and it has not left any scope for interpreting the said deliberately and it has not left any scope for interpreting the said deliberately and it has not left any scope for interpreting the said expression as 'may. This is clear from the fact that prior to the expression as 'may. This is clear from the fact that prior to the expression as 'may. This is clear from the fact that prior to the amendment brought about by the Finance Act, 1987, the amendment brought about by the Finance Act, 1987, the amendment brought about by the Finance Act, 1987, the Legislature in t Legislature in the corresponding section pertaining to imposition of he corresponding section pertaining to imposition of interest used the expression interest used the expression 'may thereby giving a discretion to 'may thereby giving a discretion to the authorities concerned to either reduce or waive the interest. the authorities concerned to either reduce or waive the interest. the authorities concerned to either reduce or waive the interest. The change brought about by the Amending Act (Finance Act, The change brought about by the Amending Act (Finance Act, The change brought about by the Amending Act (Finance Act, 1987) is a cl 1987) is a clear indication of the fact that the intention of the ear indication of the fact that the intention of the legislature legislature was to make the collection of statutory interest was to make the collection of statutory interest mandatory........ mandatory........ Thus, it is clear that the levy of interest us 234A is mandatory and Thus, it is clear that the levy of interest us 234A is mandatory and Thus, it is clear that the levy of interest us 234A is mandatory and automatic on the part of the AO and powers for waiver a automatic on the part of the AO and powers for waiver and reduction in nd reduction in

Deepak Novochem 21 ITA Nos. 2558 to 2562/Mum/2023 ITA Nos. 2558 to 2562/Mum/2023

this respect have been vested with Competent Authorities, other than AO, this respect have been vested with Competent Authorities, other than AO, this respect have been vested with Competent Authorities, other than AO, vide orders/notifications issued by the Board by virtue of powers vide orders/notifications issued by the Board by virtue of powers vide orders/notifications issued by the Board by virtue of powers conferred u/s 119(2) of the Act. In view of the above, the Ground 3 is held conferred u/s 119(2) of the Act. In view of the above, the Ground 3 is held conferred u/s 119(2) of the Act. In view of the above, the Ground 3 is held as non-maintainable in te maintainable in terms of the provisions of section 246A of the Act rms of the provisions of section 246A of the Act and the same is dismissed without going into merits or any other issue. and the same is dismissed without going into merits or any other issue. and the same is dismissed without going into merits or any other issue.” 14.1 Before us, the Ld. Counsel of the assessee has relied on the Before us, the Ld. Counsel of the assessee has relied on the Before us, the Ld. Counsel of the assessee has relied on the decision of the Hon’ble Delhi High Court in the case of Dr Prannoy decision of the Hon’ble Delhi High Court in the case of decision of the Hon’ble Delhi High Court in the case of Roy vs CIT (2002) 121 taxmann.com 314 (Delhi) 121 taxmann.com 314 (Delhi), wherein it is held wherein it is held that interest u/s 234A that interest u/s 234A can’t be levied where tax due on income was can’t be levied where tax due on income was already paid but an assessee already paid but an assessee could not file return could not file return for reasons beyond his control. It was contended by the assessee . It was contended by the assessee . It was contended by the assessee before us that in the case also return could be filed for technical error though self in the case also return could be filed for technical error though self in the case also return could be filed for technical error though self assessment tax was already paid. tax was already paid.

14.2 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. In view of the contention of the relevant material on record. In view of the contention of the relevant material on record. In view of the contention of the assessee that self assessment tax was already paid and the self assessment tax was already paid and the self assessment tax was already paid and the assessee failed to file return for reasons beyond his control, we assessee failed to file return for reasons beyond his assessee failed to file return for reasons beyond his restore the issue of levy of interest u/s 234A back ssue of levy of interest u/s 234A back to the file of the to the file of the Assessing Officer for deciding in accordance with law. The ground Assessing Officer for deciding in accordance with law. The ground Assessing Officer for deciding in accordance with law. The ground No.2 of appeal of the assessee is accordingly allowed for statistical appeal of the assessee is accordingly allowed for statistical appeal of the assessee is accordingly allowed for statistical purposes.

Deepak Novochem 22 ITA Nos. 2558 to 2562/Mum/2023 ITA Nos. 2558 to 2562/Mum/2023

consideration is also restored to the file of the Assessing Officer for consideration is also restored to the file of the Assessing Officer for consideration is also restored to the file of the Assessing Officer for verification and allow verification and allowing in accordance with law.

Order pronounced in the open Court on nounced in the open Court on 28/11/2023. /11/2023. Sd/ Sd/- Sd/- Sd/ (RAHUL CHAUDHARY RAHUL CHAUDHARY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 28/11/2023 Rahul Sharma, Sr. P.S.

Deepak Novochem 23 ITA Nos. 2558 to 2562/Mum/2023 ITA Nos. 2558 to 2562/Mum/2023

Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai