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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2014-15 arises out of the order of learned Commissioner of Income Tax (Appeals)-1, Chennai [CIT(A)] dated 30-03-2018 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 30-12-2016. The assessee has filed statement of facts and grounds of appeal
which read as under: -
1. The Appellant is a Company engaged in the business of manufacture and sale of drugs and pharmaceutical products.
2. The Appellant Company filed its Return of Income, for the above Assessment Year admitting an income of Rs 10,35,77,030/- under conventional scheme and Rs 22,03,03,237/- U/s 115JB. The Learned Assessing officer completed the assessment U/s 143(3) and determined a taxable income of Rs 13,01,89,939/- under conventional scheme and Rs 22,03,54,410/- U/s 115JB.
The Appellant filed an appeal against the order U/s 143(3), which was disposed by the learned Commissioner of Income Tax (Appeals) & - 1, vide Order in ITA No: 341 CIT (A)-I/ 2016-17 dated 30.03.2018. 4. Against the order of the Commissioner of Income Tax (Appeals), the Appellant is filing an appeal in respect of the non- allowance of weighted deduction U/s 35(2AB) in respect of revenue expenditure incurred on R & D activity for the period 01.04.2013 to 28.01.2014. 5.1 The learned Commissioner of Income Tax (Appeals) erred in concluding that the AO was justified in restricting the claim based on the certificate issued by the DSIR in form 3CL. 5.2 The learned CIT(A) ought to have appreciated that in order to claim weighted deduction, the expenditure should have been incurred in connection with in-house development and though the approval of DSIR is required to claim the weighted deduction, there is no fetter that the deduction will be curtailed to the period as specified in Form 3CL. 5.3 The learned CIT(A) erred in relying the decision of the Karnataka High Court in the case of Tejas Network Ltd Vs DCIT (2015) 60 (Taxman.com 309) , when the jurisdictional High Court in the case of CIT Vs Wheels India Limited (2011) 336 ITR 513 , held to the effect that deduction U/s 35(2AB) is applicable for whole year and DSIR cannot restrict the deduction to part of the year. 5.4 Learned CIT (A) ought to have appreciated that the appellant is eligible for deduction U/s 35 (2AB) for the whole period based on the following decisions also: • CIT Vs Claris Life Sciences Limited [2010] 326 ITR 251 (Guj). • Sandan Vikas (India) Limited – 335 ITR 117 – (Del) HC. • Aarti industries Limited vs ADIT (ITA/370/Mum/2009) The Appellant carves leave to add, alter or modify the grounds of appeal at any time before or during the hearing of appeal.
As evident, the sole grievance of the assessee is quantum of deduction u/s 35(2AB).
The Ld. AR relied on the decision of Mumbai Tribunal in Omni Active Health Technologies Ltd Vs ACIT in order dated 26.05.2020 as well as the decision of Pune Tribunal in Cummins India Limited Vs DCIT in ITA No. 309/Pun/2014 order dated 15.05.2018. The Ld. AR submitted that the amendment brought in by the IT (Tenth Amendment) Rules w.e.f 01.07.2016 was prospective in nature and earlier provisions do not prescribe any methodology of approval to be granted by the prescribed authority. The Ld. Sr. DR controverted the argument of the Ld. AR. Having heard rival submissions, our adjudication would be as under. 3.1 The material facts are that the assessee being resident corporate assessee is stated to be engaged in manufacturing of Pharmaceutical products. The assessee had arrangement of in-house research and development facility which was eligible for weighted deduction of 200% u/s. 35(2AB) of the Act. The assessee incurred revenue expenditure of Rs.273.65 Lacs and another Rs.10.62 Lacs in the nature of capital expenditure. As per the extant provisions of Section 35(2AB) of the Act, the assessee was eligible to claim 200% weighted deduction for aggregate amount of Rs.284.28 Lacs. 3.2 However, upon perusal of Form 3CL issued by DSIR (prescribed authority), it was noted that though the entire capital expenditure of Rs.10.62 Lacs was allowed by DSIR, however, the revenue expenditure was allowed only to the extent of Rs.48.42 Lacs. The claim made by the assessee and approval as granted in Form 3CL could be tabulated as under: - Claimed u/s. 35(2AB) Approved vide Form 3CL F.Y. Revenue Capital Total Revenue Capital Total Expenses Expenses claimed Expenses Expenses Claimed 2013-14 273,65,322 10,62,684 2,84,28,006 48,42,574 10,62,684 59,05,258 The difference arose because of the fact that DSIR grant approval for revenue expenditure only from 28.01.2014 whereas the assessee claimed expenditure incurred throughout the financial year. However, 4 - rejecting the same, Ld. AO disallowed the claim and added an amount of Rs.235.85 Lacs to the income of the assessee.
Upon further appeal, The Ld. CIT(A) observed that the provisions of Sec.35(2AB) have to be read in conjunction with Rule 6 of Income Tax Rules. Rule 6(4) provide that the company has to make an application in Form 3CK. The approval as given to the assessee shall be subject to various conditions. The second condition of Rule 6(7A) is that the approving authority should submit a report in relation to the approval of in house R&D facility in Form No.3CL to DG(IT exemption) within 60 days of granting approval. Therefore, the assessee has to follow the procedure as prescribed u/s 35(2AB) r.w.r. 6(7A). Upon perusal of Form No.3CL (as extracted in para-12 of the impugned order), it was noted that eligible recurring expenditure was mentioned as Rs.48.42 Lacs. Thus, the prescribed authority has allowed / certified only Rs.48.42 Las on account of revenue expenditure. The decision of Hon’ble Madras High Court in the case of CIT Vs Wheels India Limited (2011) 336 ITR 513, as relied upon by the assessee, was held to be distinguishable since the question therein was whether the assessee’s activities would fall within the ambit of Sec.35(2AB) or not. In that case law, the question was whether the benefit could be granted in respect of periods prior to the date of notification of the Board. However, in the present case, the question is whether AO could grant higher deduction ignoring the certificate issued by competent authority. The decision of Hon’ble Karnataka High Court in Tejas networks Ltd Vs DCIT (2015) 60 Taxmann.com 309 was held to be applicable wherein it was held that the exercise of correctness of the certificate issued the prescribed authority was not available to AO. Accordingly, the action of Ld. AO was upheld. Aggrieved, the assessee is in further appeal before us. Our finding and Adjudication 5. The undisputed fact that emerges are that the assessee has set- up in house R & D facility which has been approved by the prescribed authority and the assessee is eligible to claim deduction u/s 35(2AB). The point of dispute is only for quantum. The approving authority has granted approval for revenue expenditure only from 28.01.2014 whereas the assessee has claimed expenditure incurred throughout the financial year. We find that Ld. CIT(A) has sought distinction in the case law of Hon’ble Madras High Court in CIT Vs Wheels India Limited (2011) 336 ITR 513. However, after studying this case law, we find that the analogy of this case law would be applicable to the facts of the present case. The Hon’ble Court concurring with the decision of Hon’ble Gujarat High Court in CIT V/s Claris Life sciences Ltd. (326 ITR 251), held as under: - 5. We are in full agreement with the reasoning which weighed with the Division Bench of the Gujarat High Court while holding that de hors any specific dates specified in the certificate of the prescribed authority, namely DSIR, once the prescribed authority approved the existence of research and development facility and the expenditure incurred on such scientific research, the assessee would be entitled for the expenditure incurred for the whole of the assessment year and cannot be granted in a truncated manner.
The facts in case law of Hon’ble Gujarat High Court in CIT V/s Claris Life sciences Ltd. (supra) were quite identical wherein it was noted that that DSIR approval was only from 27.02.2001 to 31.03.2003 but the assessee claimed weighted deduction for entire expenses as incurred during the year. The claim was allowed by Ld. AO w.e.f.
27.02.2001. However, Tribunal allowed the claim for the whole of the year. Affirming the decision of Tribunal, Hon’ble Court held as under: - "The Tribunal has also considered rule 6(5A) and Form 3CM and come to the conclusion that a plain and harmonious reading of the rule and Form clearly suggests that once the facility is approved, the entire expenditure so incurred on development of the research and development facility has to be allowed for weighted deduction as provided by section 35AB(2). The Tribunal has also considered the legislative intention behind the above enactment and observed that to boost the 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, the intention of the Legislature by making the 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."
The cited decisions of Tribunal also favor the case of the assessee. Therefore, respectfully following the analogy of decision of Hon’ble Madras High Court in CIT Vs Wheels India Limited (2011) 336 ITR 513, we direct Ld. AO to grant full deduction to the assessee. 6. The appeal stand allowed in terms of our above order.
Order pronounced on 03rd August, 2022.