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Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
This appeal filed by the assessee is directed against the order dated 19.01.2017 of the Assessing Officer passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to assessment year 2012-13.
This appeal was earlier decided by the Tribunal vide order dated 18.05.2022. Subsequently, the Tribunal vide Miscellaneous Application No.230/PUN/2023 order dated 04.02.2023 recalled the order for the limited purpose of adjudicating the non-TP issues as per grounds of appeal No.2 and 3 which remained to be adjudicated. Hence, this appeal.
3. The grounds remained to be adjudicated are as under: II. Non TP Issues 2. Without prejudice to the above, the learned DRP erred in law and on facts in enhancing the disallowance of claim made u/s 35(2AB) of the R & D expenditure for the reason that the appellant is not eligible to claim deduction u/s 35(2AB) for the amount which is in excess of the amount approved by DSIR.
Without prejudice to the above, after having denied weighted deduction claimed u/s 35 (2AB) in respect of the said expenditure on scientific research the learned DRP and the AO erred in law and on facts, in not allowing the deduction of the same under the provisions of Section 35(1) (iv) Income Tax Act, 1961 at least to the extent of One hundred percent.
4. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacture and sale of air conditioners, radiators, heat exchangers parts and components thereof which are used in cars and SUVs and in providing IT enabled design engineering services in the automotive industry segment. It filed its return of income on 30.11.2012 declaring total income of Rs.9,58,15,960/-. Since the assessee had entered into certain international transactions reported in Form No.3CEB, the matter was referred to the Transfer Pricing Officer (TPO) who made certain upwards adjustments. Accordingly, the Assessing Officer passed the draft assessment order on 29.03.2016 making addition of Rs.9,52,85,477/- and thereby determined the total income of the assessee at Rs.19,11,01,437/-.
The assessee approached the Dispute Resolution Panel (DRP) who vide order dated 20.12.2016 gave certain directions to the Assessing Officer. It is seen from the assessment order that the assessee has claimed weighted deduction u/s 35(2AB) of the Act of Rs.15,00,63,093/-. During the course of assessment proceedings the Assessing Officer noted that out of total expenditure on R&D, the expenditure of Rs.3,38,82,341/- has been incurred outside India and not in the R&D facility approved by the prescribed authority. The Assessing Officer distinguished the case laws relied upon by the assessee by holding that the said case laws are in respect of expenditure within India but outside the approved R&D facility as against the case of the assessee wherein the expenditure has been incurred outside the approved R&D facility and also outside India. The Assessing Officer therefore, reduced the assessee’s claim of deduction u/s 35(2AB) to the extent of Rs.3,38,82,341/-.
The DRP noted that the expenditure on R&D of Rs.3,38,82,341/- has not only been incurred outside the approved R&D facility but also outside India. According to the DRP, the benefit of claim of weighted deduction u/s 35(2AB) is available only in respect of the expenditure which has been incurred within the approved R&D facility and which is also subjected to the audit by the prescribed authority. The DRP accordingly held that the Assessing Officer is justified in not allowing the claim of deduction u/s 35(2AB) of the Act in respect of the said R&D expenditure of Rs.3,38,82,341/- incurred outside India.
7. However, upon verification of various details furnished by the assessee before the Panel, the DRP noted that the total R&D expenditure claimed by the assessee comprises of revenue R&D expenditure of Rs.4.8 crores and capital R&D expenditure of Rs.5.1 crores. The assessee had claimed deduction u/s 35(2AB) of the Act @ 200% for the capital R&D expenditure claim of Rs.5.1 crores and the balance revenue R&D expenditure of Rs.4.8 crores has been claimed @ 100% and which has also separately been debited to the Profit and Loss Account. The DRP further noted that out of the revenue R&D expenditure claimed by the assessee of Rs.4.8 crores, DSIR has approved expenditure of only Rs.4.74 crores. Therefore, the assessee has claimed an excess of Rs.0.6 crores related to its claim of revenue R&D expenditure which is not eligible for deduction. The DRP further observed that out of capital R&D expenditure claimed of Rs.5.1 crores, DSIR has approved the expenditure of only Rs.21 lakhs. Therefore, the assessee has claimed an excess amount of Rs.4.89 crores related to its claim of capital R&D expenditure. Since the assessee has claimed deduction u/s 35(2AB) of the Act @ 200% on this excess amount of Rs.4.89 crores, the amount to be disallowed out of the claim u/s 35(2AB) works out to Rs.9.78 crores. Since the Assessing Officer has disallowed only an amount of Rs.3.38 crore, therefore, the DSIR issued a show cause notice asking the assessee to explain as to why the balance amount of Rs.6.46 crore should not be enhanced.
The assessee submitted that the expenditure incurred by it outside the in- house R&D facility is also allowable as deduction u/s 35(2AB). It was further submitted that the Assessing Officer has only allowed the expenditure incurred within in-house R&D facility which implies that the Assessing Officer in principle has accepted its eligibility for the deduction for R&D expenses. It was alternatively argued that this expenditure should be allowed as deduction u/s 35(1) @ 100% instead of u/s 35(2AB) @ 200%. Another alternate plea was also made that atleast depreciation @ 25% be allowed on the said intangible asset created.
However, the DRP was not satisfied with the arguments advanced by the assessee. They noted that expenditure of Rs. 3.38 Crores has been incurred outside the in-house R & D facility of the assessee and outside India. According to the Panel, the provision u/s 35(2AB) is to promote research and development in India and, therefore, the expenditure incurred outside the R & D facility and outside India cannot be considered for deduction u/s.35(2AB). The case laws relied upon by the assessee all relate to R & D expenditure incurred outside the R & D facility but within India, and, therefore, do not help the cause of the assessee. The Panel noted that out of the revenue R & D expenditure claimed by the assessee of Rs.4.8 Crores, only an amount of Rs.4.74 Crores has been approved by DSIR. Similarly, out of the capital R & D expenditure claimed by the assessee of Rs.5.1 Crores, only an amount of Rs.21 Lakhs has been approved by DSIR. The assessee is not eligible to claim deduction uls.35(2AB) for the amount which is in excess of the amount approved by DSIR. Accordingly, the Panel noted that the amount of deduction, which the assessee is entitled to on account of R & D expenditure u/s 35(2AB), is of only Rs.5.16 Crores (revenue expenditure of Rs.4.74 Crores @ 100% approved by DSIR and capital expenditure of Rs.21 Lakhs @ 200% approved by DSIR). Therefore, the assessee's claim of deauction u/s 35(2AB) was restricted to Rs.5 16 Crores, as against Rs. 15.006 Crores claimed by it and Rs.11.626 Crores allowed by the AO. Accordingly, there was an enhancement of Rs 6.466 Crores (Rs 11.626 Crores Rs.5.16 Crores). The alternative plea of the assessee to be allowed depreciation on the said amount which has been capitalized was accepted in principle. However, the Panel held that for the year under consideration, depreciation can be allowed only to the extent of the amount which has not been shown as capital WIP by the assessee. The corresponding WIP for the amount capitalized but shown as capital WIP will be allowed in the year when the said capital WIP is transferred as an intangible asset in the Balance Sheet.
10. The Assessing Officer in the final order passed on 19.01.2017 however, made disallowance of weighted deduction u/s 35(2AB) to the extent of Rs.3,38,82,341/-.
Aggrieved with such order of the Assessing Officer / TPO / DRP, the assessee is in appeal before the Tribunal.
12. The Ld. Counsel for the assessee submitted that the Assessing Officer in the final assessment order has not enhanced the income. He submitted that till the amendment to Rules 6 and 7A from 1st July 2016 vide Income Tax Rules, 2016 (10th Amendment) the DSIR had to only approve the R&D facility and there was no requirement for DSIR to quantify the expenditure. He submitted that the claim of the assessee was in respect of expenses on R&D incurred in the period prior to the introduction of the said Rules 6 and 7A.
13. Referring to the decision of the Pune Bench of the Tribunal in assessee’s own case for assessment year 2011-12 he submitted that under similar facts and circumstances the Tribunal has held that the stipulation for quantifying the eligible R&D expenditure was not there for assessment year 2011-12 and therefore can have no applicability.
14. Referring to the decision of the Pune Bench of the Tribunal in the case of Cummins India Ltd. [TS-7463-ITAT-2018 (Pune)-O] he submitted that the Tribunal in the said decision has held that prior to the amendment of Rules 6 and 7A w.e.f. 1st July, 2016 no procedure / methodology was prescribed for quantification of the claim for deduction of R&D expenses and there is no merit in the order of the Assessing Officer in curtailing the expenditure and consequent weighted deduction claimed u/s 35(2AB) on the surmise that the prescribed authority i.e. DSIR has only approved part of the expenditure in Form 3CL. He submitted that since the Rules 6 and 7A were not there in assessment year 2012-13 as well and were not applicable for assessment year 2012-13, therefore, in view of the decision of the Tribunal in assessee’s own case, the same should be allowed.
15. In his alternate submission he submitted that the assessee has incurred expenses on Product testing and validation at Rs.3,38,82,341/- outside India in the course of product development undertaken in approved in house R & D Centre. The said expenses were capitalised and consisted of Capitalised Development cost Rs.1,08,68,113/- and Capital WIP Rs.2,30,14,228/-. The DRP has denied claim for weighted deduction. The said testing and validation was carried out at the parent company's facilities in Germany and claim has been made u/s 35 (1) (iv) on the basis of incurrence of capital expenses. Proposition for claim u/s 35 (1) (iv) has been upheld by Hon’ble Gujarat High Court in Gujarat Aluminium Extrusions P. Ltd. 263 ITR 453. Identical issue had come up before the Pune Bench of the Tribunal in assessee’s own case for the preceding year A.Y. 2011-12 and on the backdrop of same set of facts the Tribunal has held that the said capital expenditure on R & D is eligible for 100% deduction u/s 35 (1) (iv) read with 35 (2) of the Act consequent to denial of claim u/s 35 (2AB). He submitted that in view of the above decisions, the issue stands covered in favour of the assessee.
16. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer / TPO / DRP.
17. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer / TPO / DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in assessee’s own case for assessment year 2011-12. The Tribunal vide order dated 31.08.2021 has decided the issue in favour of the assessee by observing as under: “3. Succinctly, the facts of the case are that the assessee is engaged in manufacturing automobile accessories particularly Heat exchangers, i.e. Radiators, Evaporators, Condensers and Automotive air conditioning systems. The return was filed declaring total income of Rs.3.56 crore and odd. One of the reported international transactions was Payment of Research and development expenses to three Associated enterprises (AEs) situated in the USA, Japan and Germany. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the arm’s length price (ALP) of the international transactions. The TPO accepted the transaction of Payment of R&D expenses at ALP. In the computation of total income, the assessee had claimed weighted deduction u/s.35(2AB) of the Act amounting to Rs.26,73,42,263/- on Research and development expenses. The assessee was called upon to furnish details of such expenditure claimed as qualifying for the weighted deduction, which were filed. On perusal of such details, the Assessing Officer (AO) observed that the assessee claimed weighted deduction on Research and Development costs of Rs.9,61,80,237/-carried outside India. Rejecting the assessee’s contention, the AO disallowed a sum of Rs.8,86,84,811/-, being, the amount of capital R&D expenditure incurred outside India. Aggrieved thereby, the assessee filed appeal before the ld. CIT(A), who, after issuing enhancement notice, held that the AO erred in allowing weighted deduction u/s.35(2AB) at a higher sum. He observed that the prescribed authority had restricted the amount of eligible deduction to the amount of expenditure incurred for the period 07-12-2010 to 31-03-2011 to only Rs.1,32,39,000/- as per Form No. 3CL dated 08-07-2014. As the approval was granted w.e.f. 07-12-2010, the ld. CIT(A) held that the assessee was not eligible for weighted deduction on the expenditure incurred from 01-04-2010 to 06-12- 2010. He further held that any expenditure capitalized by the assessee in the nature of `Intangibles’ was not eligible for the weighted deduction. The amount capitalized by the assessee was held to be eligible for depreciation allowance at 25%. To sum up, he allowed deduction for a sum of Rs.2,56,94,285/- (Rs.1,32,39,000/- as permitted by the Prescribed authority u/s.35(2AB) plus depreciation @ 25% on the amount of capital expenditure of Rs.4,98,21,138/-. This resulted into enhancement of income by Rs.15,29,63,167/-, other than the confirmation of addition made by the AO. This has brought the assessee before the Tribunal.
We have heard both the sides and gone through the relevant material on record. The AO proceeded with allowing the weighted deduction on the basis of a Table submitted by the assessee, which has been extracted in para 5.1 of his order, reading as under :
Particulars Amount Outside India Remaining Claim u/s.35(2AB) Considered in FA - - - additions - Capitalised 4,48,35,186 3,39,60,518 1,08,74,668 - Development Cost Tangible 42,94,251 - 42,94,251 - Investments- Additions Manpower Cost 6,91,701 - - - Sub Total (A) 4,98,21,138 3,39,60,518 1,58,60,621 9,96,42,277 Considered in CWIP Development Cost 5,47,24,293 5,47,24,293 - - Tangible 6,800 - 6,800 - Investments Salary-Design 1,18,45,866 - 1,18,45,866 - Travel Expenses 2,05,632 - 2,05,632 - Sub-Total (B) 6,67,82,591 5,47,24,293 1,20,58,298 13,35,65,182 Expenses Debited to 3,41,34,804 74,95,427 2,66,39,378 3,41,34,804 P&L A/c. (Sub-total C) Grand Total 15,07,38,534 9,61,80,237 5,45,58,297 26,73,42,263 5. It can be seen from the above Table that the assessee categorized R&D expenses under three broad heads: `Considered in FA Additions’ amounting to Rs.4,98,21,138/- (Sub-total A); `Considered in CWIP’ amounting to Rs.6,67,82,591/- (Sub-total B); and `Expenses Debited to P&L A/c’ amounting to Rs.3,41,34,804/- (Sub-total C). The three heads have further been bifurcated into `Outside India’ and `Remaining’ inside India. Total of three expenses incurred outside India comes to Rs.9,61,80,237. As the aggregate Sub-total C was claimed as revenue expenditure in Profit and Loss account, the assessee claimed deduction u/s 35(2AB) at two times of the aggregate Sub-totals (A) and (B) and one time of the aggregate Sub-total C for a total sum of Rs.26,73,42,263/-. Against such a claim of the assessee, the AO disallowed a sum of Rs.8.86 crore, being, the weighted part of sub-totals (A) and (B) of the expenditure incurred outside India, thereby allowing a single unweighted deduction of such costs incurred outside India. The ld. CIT(A) further disallowed even the one time of the amount of the revenue expenses allowed by the AO and also sub-totals (A) & (B) except for granting depreciation allowance on the amount considered by the assessee in FA additions amounting to Rs.4,98,21,138/-. Thus, the ld. CIT(A) allowed total weighted deduction of Rs.2.57 crores by primarily relying on the amount approved by the Prescribed authority (DSIR) with effect from the date of approval, namely, 07-12-2010 and also a limited amount of depreciation allowance. A copy of the approval has been placed at page 25A of the paper book, which is letter dated 07- 12-2010 issued by the DSIR recognizing the assessee’s in-house R&D unit.
6. The case of the ld. CIT(A) is that the assessee was not eligible for weighted deduction on any amount spent by it on a date prior to the grant of approval. For this purpose, he relied on Guidelines of in-house R&D centres recognized by DSIR issued in May, 2010. The relevant part of the guidelines given in para 6 – Policy for approval is as under : “(i) Approval to the in-house R&D centres having valid recognition by DSIR are considered from 1st April of the year in which application is made Form 3CK. (ii) Approval is considered co-terminus with DSIR recognition. (iii) For companies not having DSIR recognized in-house R&D Centre, approval is considered from the date of recognition.”
The remaining 3 points given as - (vi) to (vi) under the Policy approval - apply only in case of firms. The assessee is a company which is governed by first three clauses of para 6 of the Policy for approval. Clause (i) clearly states that approval to the in-house R&D centres having valid recognition by DSIR are considered from Ist April of the year in which application is made in Form 3CK. The assessee in the instant case filed application on 15-07-2010 whose copy is available at page 26 to 66 of the paper book. Pursuant to the assessee’s application, it was accorded recognition vide letter issued by DSIR on 07-12- 2010. Going with the mandate of clause (i) of para 6 of the Guidelines as extracted above, the approval will have to be considered from Ist April of 2010, which is the previous year relevant to the assessment year under consideration. Clause (iii) providing for the approval to be considered from the date of recognition, applies only in case of companies not having DSIR recognized in- house R&D. Since the assessee has a valid approval granted by the DSIR for R&D Centre, it is covered within the four walls of clause (i) and there is no scope for applying clause (iii) and accordingly making it eligible for deduction only from the date of recognition. Accordingly, it is held that the approval to the assessee’s in-house R&D centre is to be considered from Ist April of 2010 under the above clause (i). The view point of the ld. CIT(A) considering the expenditure only from the date of the approval, namely, 07-12-2010, in our considered opinion is not in accordance with the relevant rules. This portion of the impugned order is thus vacated.
8. The ld. CIT(A) restricted the claim of weighted deduction to the amount of Rs.1,32,39,000/-, being, the amount permitted by the Prescribed authority. For this, he relied on Rule 6 (7A) as applicable from 01-07-2016. Clause (b) of Rule 6 (7A) provides as under: “(b) The prescribed authority shall furnish electronically its report – (i) In relation to the approval of in-house research and development facility in Part A of Form No.3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Act in Part B of Form No. 3CL;’.
9. Sub-Clause (i) of clause (b) of Rule 6 (7A) provides that the prescribed authority shall furnish its report in relation to the approval of in-house R&D facility quantifying the amount of expenditure incurred during the previous year, which is eligible for weighted deduction under sub-section (2AB) of section 35. It is on the basis of the above sub-clause (ii) of clause (b) of Rule 6(7A) that the ld. CIT(A) opined that the quantification of the expenditure incurred on in-house R&D facility has to be done by the prescribed authority and the amount eligible for weighted deduction cannot cross that threshold. It is no doubt true that sub- clause (ii) of clause (b) of Rule 6 (7A) categorically provides that the amount of weighted deduction u/s.35(2AB) has to be restricted to the amount quantified by the prescribed authority. However, it is relevant to note that the clause (b) as extracted above has been substituted by the Income-tax (10th Amendment) Rules, 2016 w.e.f. 01-07-2016. Prior to this substitution, the clause (b) read as under : “(b) The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No.3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval.”
As per the pre-existing clause (b), the prescribed authority was supposed to submit only its report in relation to the approval of in-house R&D facility to the Director General (Income-tax Exemptions). The stipulation of quantifying the eligible expenditure by the competent authority for the purposes of weighted deduction u/s.35(2AB) was not there. The only requirement was to submit the report in relation to the approval of in-house R&D facility. Any amount of expenditure incurred in respect of in-house R&D facility qualified for the deduction - whether or not approved by the prescribed authority. Only the existence of approval and incurring of the expenditure were relevant considerations in the pre-amended era and not the amount quantified by the prescribed authority. The new stipulations came to be introduced w.e.f. 01-07- 2016. As the assessment year under consideration is 2011-12 and the approval was granted by DSIR on 07-12-2010, the amended sub-clause (b) of Rule 6 (7A) coming into vogue even after the passing of the assessment order can have no applicability. We, therefore, hold that the ld. CIT(A) was not justified in restricting the amount of weighted deduction to the quantification done by the prescribed authority. The impugned order is reversed on this score.
11. The ld. CIT(A) also held that the capital expenditure in the nature of Intangibles incurred by the assessee could not qualify for the weighted deduction. For this purpose, he relied on the `Guidelines for approval in Form 3CM of in- house R&D Centres recognized by DSIR’ dated May 2014. Para 4 of such Guidelines contains `Conditions subject to which approval is given’. Clause (xi) of para 4 runs as under: “Capital expenditure on R&D, eligible for weighted deduction will include only plant and equipment or any other tangible item. Capitalized expenditure of intangible nature will not be eligible for weighted deduction.”
It can be seen from the above that the capital expenditure of intangible nature has been made ineligible for the weighted deduction. However, it is crucial to note that this ineligibility has been introduced by means of Guidelines issued in May 2014. The predecessor Guidelines of May 2010 did not contain any clause similar to clause (xi) of the 2014 Guidelines. Since the assessment year under consideration is 2011-12, the Guidelines issued in May, 2014 can have no application to the case. We, therefore, overturn the impugned order on this score.
Now we come to the expenditure incurred outside India for which the assessee raised a claim of weighted deduction u/s.35(2AB) that was not allowed by the AO. The ld. AR claimed that the assessee was entitled to such deduction, which contention was strongly countered by the ld. DR. In order to appreciate the rival contentions, it would be befitting to have a glance at the relevant part of section 35(2AB) which is as under : “(2AB)(1) Where a company … incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to … of the expenditure so incurred: Provided ….”
A cursory look at the above provision deciphers the conditions for the weighted deduction, inter alia, that an eligible company incurs any expenditure on scientific research (other than cost of land or building) on in-house research and development facility as approved by the prescribed authority. The key words in the provision are incurring of expenditure on in-house R&D facility as approved by the prescribed authority. Unless a particular R&D facility is approved by the prescribed authority, no weighted deduction can follow. On a pertinent query, the ld. AR admitted that the prescribed authority approved the in- house R&D unit of the assessee situated at “Gat No.626/1/2 and 622/1/0, 26 Milestone, Pune-Nasik Highway, Village Kuruli, Tal : Khed, District Pune”. On a further query, the ld. AR submitted that the assessee’s approved R&D facility was engaged in designing and developing of Engine cooling systems and HVAC systems for vehicles. During the designing and development phase, engine coolant and HVAC systems are required to be put in Performance Evaluation Testing in variant weather conditions artificially created, for which sophisticated technology and set up is required that is not available in India. It was for such Performance Evaluation Test under variant weather conditions artificially created that the assessee availed services from its three AEs situated abroad. It was pointed out that the three AEs conducted the needful tests for which the assessee incurred total cost of Rs.9.61 crore tabulated under Column “Outside India”, which was accepted by the TPO at ALP.
From the above discussion, it is abundantly clear that the total sum of Rs.9.61 crore incurred by the assessee outside India has not been incurred on in- house R&D facility as approved by the prescribed authority. What to talk of in- house R&D facility of the assessee approved by the prescribed authority, here is a case in which the assessee incurred these costs for availing services from the R&D facilities of its AEs. Since the R&D facilities for which the assessee incurred costs outside India are neither of the assessee nor approved by the prescribed authority, there can be no question of granting any weighted deduction on the expenses incurred outside India. To sum up, it is held that the assessee is entitled to weighted deduction u/s.35(2AB) on total amount of expenditure incurred in India amounting to Rs.5,45,58,297/-. Resultantly, no weighted deduction is admissible in respect of expenditure incurred outside India amounting to Rs.9,61,80,237/-.
At this juncture, it is pertinent to note the mandate of section 35 with the caption `Expenditure on scientific research’. Clause (iv) of section 35(1) provides for deduction of expenditure on scientific nature “in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2).” Sub-section (2) of section 35, in turn, provides through sub-clause (ia) that for the purposes of clause (iv) of sub-section (1): `in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted for that previous year”. The proviso provides for not allowing deduction in respect of expenditure incurred on acquisition of any land. On a conjoint reading of section 35(1) (iv) read with section 35(2), it is manifested that any expenditure of capital nature incurred on scientific research, other than the cost of land etc., qualifies for full one time deduction in the year of such incurring. Unlike sub-section (2AB), sub-section (1) does not require any specific approval from the prescribed authority for this purpose. Further, there is no stipulation that the expenditure should be incurred in India or outside or in-house R&D facility or otherwise, save and except as provided in other clauses of sub-section (1) of section 35. However, the amount of deduction u/s.35(1) is equal to the amount of capital expenditure on scientific research.
Coming back to the amount of expenditure incurred by the assessee outside India amounting to Rs.9,61,80,237/-, we find that the expenditure of revenue nature, namely, Rs.74,95,427/- was claimed by the assessee as revenue expenditure and accordingly allowed also. It is only the remaining capital expenditure of Rs.8,86,84,811/- [Rs.3,39,60,518/- being sub-total (A) and Rs.5,47,24,293/- being sub-total (B)] that qualifies for deduction u/s.35(1)(iv). We order accordingly.
18. The ld. DR took strong exception to the claim of the ld. AR for granting deduction of the capital expenditure on scientific research and development incurred outside India u/s.35(1)(iv). He submitted that no such ground has been taken by the assessee. It is apparent that the assessee raised a claim for weighted deduction on such an amount u/s.35(2AB) of the Act. We have held hereinabove that the amount does not qualify for the weighted deduction. The fact that the claim of the assessee cannot be entertained under one provision does not oust it from consideration under any other provision, if it is otherwise allowable under such latter provision. We have noticed that the amount of capital expenditure incurred on research and development outside India is eligible for deduction u/s.35(1)(iv). The same, therefore, has to be allowed as such. The ld. DR’s contention in this regard is sans merit and hence repelled. 19. To summarize, the entire amount of R&D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB); revenue R&D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself; total of capital R&D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act.”
Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case, we hold that the entire amount of R&D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB); revenue R&D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself; total of capital R&D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 15th January, 2025.