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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B” : HYDERABAD
Before: SHRI S.S.GODARA & SHRI LAXMI PRASAD SAHU
PER S.S.GODARA, J.M. :
The instant batch of three appeals pertains to twin assessees herein namely M/s.RCC Laboratories India Pvt. Ltd. and Biological E Limited. The former assessee’s appeals ITA Nos.1800/Hyd/2018 & 484/Hyd/2020 for AYs.2015-16 &
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2016-17 followed by the latter taxpayer’s appeal ITA No.1434/Hyd/2019 arise against CIT(A)-3, Hyderabad’s order(s) dt.20-06-2018, 24-03-2020, passed in case Nos.0198, 10162/DCIT-3(1)/CIT(A)-3/2017-18, 2018-19/A-3/CIT(A)-3 and CIT(A)-1, Hyderabad’s order dt.28-06-2019 (ITA No.1434/H/19), passed in case No.10398/2018-19/DCIT 1(2)/CIT(A)-1/Hyd/2019-20, involving proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, ‘the Act’]; respectively. Heard both the parties. Case files perused.
It transpires at the outset that ITA No.484/Hyd/2020 (AY.2016-17) suffers from 03 days delay in filing, stated to be attributable to the reason(s) beyond its control as per condonation petition/affidavit. No rebuttal has come from the departmental side. The impugned delay is condoned therefore.
It emerges at the outset that all these three appeals raise former issue in ITA No.1800/Hyd/2018 and sole substantive grievance in latter twin cases; seeks to challenge both the lower authorities’ action denying Section 35(2AB) weighted deduction claim(s) of Rs.2,61,32,524/-, Rs.86,01,037/- and Rs.4,81,64,481/-; respectively for the sole reason that the corresponding Form-3CL issued by the prescribed authority i.e., DSIR was nowhere placed on record. We therefore propose to decide the instant common issue together and treat the first assessee’s appeal, ITA No.1800/Hyd/2018 (AY.2015-16) as the “lead” case.
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We next note that the CIT(A)’s detailed discussion affirming the Assessing Officer’s action declining the impugned weighted deduction to the assessee reads as under: “VII) Ground Nos.2, 3, 4, 5 and 6 in appeal relates to disallowance of claim u/s.35(2AB) of the Act. Facts of the case, grounds of appeal and assessment order were perused. It is seen that the appellant sought deduction u/s.35(2AB) without the requisite Form No.3CM and Form No.3CL. This claim made by the appellant is not correct as Section 35(2AB)(4) speaks about such approval. In the absence of such approval, the conditions laid down u/s.35(2AB) are not complied with and hence approval u/s.35(2AB) is not allowed. The appellant's contention that this is a mere procedural defect is not correct as the deduction u/s.35(2AB) under the Income Tax Act are provisions of statute passed by the Union Parliament. In this context, it would be pertinent to say that plain words need no explanation or elucidation. In this case the observations of Rowlatt, J in the case of Cape Brandy Syndicate vs Indian Revenue Commission are relevant. "In a taxing statute one has to look at what is clearly said. Nothing is to be read in, nothing is to be implied. One can only look fairly on the language used. "The Supreme Court in the case of CIT vs. Ajax Products Ltd., (55 LTR 741) refers to this judgment. After examination of the matrix of issues it is noted that so long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the legislature cannot then be' appealed to whittle down the statutory language which is otherwise clear. In the case of CIT vs TV Sundaram Iyengar [101 ITR 764] (SC), the Apex Court observed that “..... if the language of the statue is clear and unambiguous, and if two interpretation are reasonably possible, it would be wrong to discard the plain meaning of the words used in order to meet a possible injustice”. Further, in the case of Keshavji Ravji & Co. Vs CIT [49 Taxman- 87] [SC], the Apex Curt observed that "..... as long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative" intent becomes impermissible. The supposed intention of the legislature cannot be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used, it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do manifest the intention of the legislature.” Considering the facts, issues and circumstances of the instant case, Ground Nos.2,3,4,5 and 6 in appeal are dismissed”.
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4.1. It is an admitted fact that the assessee’s alleged research and development business is already an approved one by the DSIR. The learned lower authorities’ sole substantive reason for rejecting the assessee’s weighted average deduction claim is that it had failed to file Form-3CM and Form-3CI approved from the DSIR as per Section 35(2AB)(4) of the Act. 5. Learned departmental representative’s vehement contention is that the impugned deduction provision is to be construed strictly in light of case law, Commissioner of Customs Vs. Dilip Kumar (2018) 9 SCC 1 (FB)(SC). He next took us to Rule-6(7A)(b) of the Income Tax Rules making it clear that such a Form-3CL is very much mandatory before granting impugned Section 35(2AB) weighted deduction.
We have given our thoughtful consideration to rival contentions against and in support of the impugned disallowance and find no reason to agree with the Revenue’s stand. This is for the reason that we are dealing with AYs.2015-16 and 2016-17, whereas the foregoing amendment in the Income Tax Rules came vide IT (10th amendment) Rules, 2016 w.e.f.01-06-2016 prescribing the relevant condition to this effect. 6.1. We further note that this tribunal’s recent co-ordinate bench decision in (2021) [187 ITD 214] Provimi Animal Nutrition India Pvt. Ltd., Vs. PCIT for AY.2015-16 itself has rejected the Revenue’s identical stand based on the amendment in the Income Tax Rules as under:
“9. The provisions nowhere suggest or imply that research and development facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will
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be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of s. itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up research and development facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction."
From the above discussion it is clear that prior to 1.7.2016 Form 3CL had no legal sanctity and it is only w.e.f 1.7.2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and Sec.35(2AB) of the Act are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) of the Act and under Sec.35(2AB) of the Act are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) of the Act should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which Sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. Of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No.3CM as required by
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Rule 6 (5A) of the Rules. In these facts and circumstances and in the light of the judicial precedents on the issue, we are of the view that the deduction u/s.35(2AB) of the Act ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the Assessee and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee”.
6.2. We adopt the foregoing detailed discussion mutatis mutandis herein as well to delete the impugned Section 35(2AB) weighted deduction disallowance of Rs.2,61,32,523/- forming subject matter of the lead appeal ITA No.1800/Hyd/2018. The instant lead appeal is accepted therefore. 7. Same order to follow in remaining twin appeals ITA Nos.484/Hyd/2020 and 1434/Hyd/2019 since involving the very question of Section 35(2AB) identical backdrop of facts. No other ground in any of these appeals has been pressed before us.
These twin assessees’ three appeals are allowed in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 18th August, 2021
Sd/- Sd/- (LAXMI PRASAD SAHU) (S.S.GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 18-08-2021 TNMM
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Copy to : 1.M/s.RCC Laboratories India Pvt. Ltd., C/o. P.Murali & Co., Chartered Accountants, 6-3-655/2/3, 1stFloor, Somajiguda, Hyderabad. 2.Biological E Limited, 18/1 & 3, Ram Nagar Road, Azamabad, Hyderabad. 3.The Dy.Commissioner of Income Tax, Circle-3(1), Hyderabad. 4.The Dy.Commissioner of Income Tax, Circle-1(2), Hyderabad. 5.The Asst.Commissioner of Income Tax, Circle-3(1), Hyderabad. 6.CIT(Appeals)-3, Hyderabad. 7.CIT(Appeals)-1, Hyderabad. 8.Pr.CIT-3, Hyderabad. 9.Pr.CIT-1, Hyderabad. 10.D.R. ITAT, Hyderabad. 11.Guard File.