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Facts
The assessee filed appeals against the CIT(A)'s orders for AY 2014-15 and 2016-17, primarily contesting the disallowance of weighted deduction for R&D expenditure under Section 35(2AB) and disallowance under Section 14A of the Income Tax Act. A 3-day delay in filing the appeals was condoned by the Tribunal due to a technical glitch.
Held
The Tribunal allowed the appeal regarding the disallowance under Section 35(2AB), noting that the R&D expenditure was approved by DSIR and following its own consistent view in the assessee's case for previous assessment years. However, the Tribunal sustained the disallowance under Section 14A, also adhering to its consistent stand in the assessee's own case.
Key Issues
1. Whether the disallowance of weighted deduction under Section 35(2AB) for R&D expenses was justified despite DSIR approval and prior judicial precedents. 2. Whether the disallowance under Section 14A was valid, adhering to the rule of consistency.
Sections Cited
35(2AB), 14A, Rule 8D
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Income Tax Appellate Tribunal, DELHI BENCH ‘C’’ : NEW DELHI
Before: SHRI MAHAVIR SINGH & SHRI MANISH AGARWAL
BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER & 184/Del/2024 Asstt. Years : 2014-15 & 2016-17 Bio Med Private Limited, VS. JCIT, Special Range, C-96, Site-1, Ghaziabad BS Road,, Indl. Area, Ghaziabad, Uttar Pradesh (PAN: AABCB3477C) (Appellant) (Respondent) Appellant by : Sh. Ved Jain, Adv., Sh. Aman Garg, CA & Ms. Ishika Dua, CA Respondent by : Sh. Om Prakash, Sr. DR Date of Hearing 13.05.2025 Date of Pronouncement 13.05.2025 ORDER PER MAHAVIR SINGH, VICE PRESIDENT : These appeals have been filed by the Assessee against the respective orders passed by the Ld. CIT (A)/NFAC, New Delhi for the assessment years 2014-15 & 2016-17 respectively. Since common grounds have been raised in both the appeals, hence, these appeals were heard together and are being disposed of by this common order for the sake of convenience, by dealing with the facts of the assessment year 2014-15 as lead case, and the decision thereof will apply mutatis mutandis to assessment year 2016-17 as well.
Following grounds have been raised in assessment year 2014-15:-
1. Because the order passed by the CIT (Appeals) is against the facts and circumstances of case and is also grossly illegal hence is unsustainable.
2. Because, Id. CIT(A) is grossly erred in sustaining the disallowance of claim of Rs. 89,67,182/- u/s 35(2AB) of Act, without appreciating the undisputed fact that assessee is granted certificate by the prescribed authority, DSIR, in terms SS (1) of said provision and AO himself could not have sit over the decision of said authority, thus disallowance is beyond jurisdiction, defeating the very provision itself.
3. Because, Id. CIT(A) further failed to appreciate that incurrence of expenses are accepted by Id. AO and assessee had complied fully and explained all the queries though unilateral and extra jurisdictional incorrect observations without providing opportunity to cross the director or providing guidelines.
4. Because, Id. CIT(A) erred in sustaining the disallowance against the rule of consistency whereby such claim u/s 35(2AB) is continuously allowed since last many decades with identical facts before AY 2013- 14.
5. Because, Id. CIT(A) is manifestly wrong in not following the judicial discipline, whereby he declined to follow the order of hon'ble ITAT deleting addition u/s 14A with identical facts in several years in assessee's own case.
6. Because, even on merits ld. CIT(A) failed to consider the same like demonstration of non-incurrence of expenditure/no satisfaction etc. instead made observations align to case.
7. The Appellant crave leave to add, amend, alter and/or modify the grounds with the leave of the Hon'ble Court.”
It is noted that there is a delay of 3 days in filing both the appeals before the Tribunal. In this regard, Ld. AR has submitted that due to some technical glitch in the ITAT portal, the delay of 3 days was occurred in filing the appeals, which may kindly be condoned. Ld. DR has no objection to this proposition. Upon consideration, we find reasonable cause has been attributed to the assessee for a very small delay of 3 days, hence, we condone the delay in dispute and proceeded further.
At the outset, it is submitted by the Ld. AR that the issue of disallowance of Rs. 89,67,187/- under section 35(2AB) of the Income Tax Act squarely covered in favor of assessee by ITAT judgement in assessee own case for AY 2013-14 bearing wherein AO made the disallowance under section 35(2AB) by making verbatim same allegations as in the present and disallowance was confirmed by Ld. CIT(A) and Hon'ble Tribunal allowed the ground of appeal raised by assessee, observing that the dispute is on the allowability of the claim under section 35(2AB) of the Act. The facility has been recognized and necessary certification has been issued by the prescribed authority and the quarrel revolves around the fulfilment of some technicalities. In the 3 | P a g e digital format of accounts maintenance, we do not find merit in the AO's finding regarding maintenance of separate books of account for R & D facility. The expenditure in this regard has not been doubted by the AO. Ld. DR could not controvert the aforesaid proposition.
We have heard both the parties and perused the records. We find considerable cogency in the contention of the Ld. AR that exactly similar issue has been adjudicated by the Tribunal in assessee’s own case for the assessment year 2013-14 in and decided the same in favor of the assessee by observing as under:-
“6. We have heard both parties at length and have perused the material available on the record. We find merit in the argument/contention/ submission of the Ld. Counsel. In the case of Marksans Pharma Ltd. (supra), the Tribunal is of the view that prior to 01.07.2016 there was no legal sanctity for Form No. 3CL in context of quantifying eligible deduction weighted under section 35(2AB) of the Act. The Tribunal, in the case of Cummins India Ltd. [2018] 96 taxmann.com 576 (Pune- Trib.), has held that there is no merit in the order of the AO in curtailing the expenditure and consequent weighted deduction claimed under section 35(2AB) of the Act. The Tribunal has held that prior to 2016, the AO is empowered to verify the genuineness of expenditure. However, in the present case the veracity of expenditure is not under question. The DSIR has already approved the said expenditure in respect of development of R & D facility. The Income Tax Rules have not prescribed any format of approval before 2016. In the case of Marksans Pharma (supra), the Tribunal is of the view that prior 4 | P a g e to 01.07.2016 there was no legal sanctity for Form No. 3CL in context of quantifying eligible deduction weighted under section 35(2AB) of the Act.
We find merit in the assessee’s case with respect to claim under section 35(2AB) of the Act. We find that in the instant case, the prescribed authority has not altered or quantified the expenses for approval towards research and development facility, but has merely expenses which have been claimed by the assessee as incurred towards research and development expenditure including capital and revenue expenditure has been approved. As far as claim of expenditure is concerned, there is no dispute between the parties. The dispute is on the allowability of the claim under section 35(2AB) of the Act. The facility has been recognized and necessary certification has been issued by the prescribed authority. The quarrel revolves around the fulfillment of some technicalities. In the digital format of accounts maintenance, we do not find merit in the AO’s finding regarding maintenance of separate books of account for R & D facility. We have perused the statements of Directors and are of the considered view that the AO has read between the lines and has drawn farfetched inferences. The expenditure in this regard has not been doubted by the AO. Only the technicalities as pointed out by the AO have come in the way. We are not convinced with the finding of the AO for disallowance of Rs.93,16,742/-under section 35(2AB) of the Act. We therefore, delete the disallowance of deduction of Rs.93,16,742/-claimed under section 35(2AB) of the Act.”
Respectfully following the aforesaid precedent, we delete the disallowance of deduction of Rs. 89,67,187/- claimed under Section 35(2AB) of the Act. Accordingly, the ground no. 2 to 4 are allowed.
7. Apropos Ground No. 5 to 6 relating to addition of Rs. 20,46,046/- under section 14A of the Act are concerned, it is submitted by the ld. AR that this issue has been decided against the assessee by the Tribunal in assessee own case for A.Y. 2013. Ld. DR did not controvert the aforesaid proposition.
We have heard both the parties and perused the records. We find that the Coordinate Bench of the Tribunal in assessee’s own case for the assessment year 2013-14 has exactly adjudicated the similar issue in assessee’s own case for the assessment year 2013-14 in and decided the same against the assessee by observing as under:-
8.1 There is specific Rule prescribed for working out the quantum of disallowance under section 14A of the Act. The appellant assessee has not worked out the disallowance under section 14A of the Act as per the income Tax Rules. The impugned order has held that the AO has recorded his dissatisfaction about the disallowance under section 14A of the Act. Hence, the Rule 8D comes into effect and the disallowance under section 14A of the Act has to be worked out accordingly. After careful consideration of facts of the case and orders of 6 | P a g e lower authorities, we do not find any infirmity in the finding of the Ld. CIT(A) on the issue of disallowance under section 14A of the Act. Hence, we decline to interfere with the finding of the Ld. CIT(A) on this issue. Accordingly, we sustain the disallowance of expenses of Rs. 11,35,257/- under section 14A of the Act.