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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R PER MAHAVIR SINGH, VP:
These two appeals by the assessee are arising out of two different orders of the Commissioner of Income Tax (Appeals)-11, Chennai in ITA Nos.35/16-17 & 71/18-19 dated 18.12.2018 & 13.03.2019 for the assessment years 2012-13 & 2016-17 respectively. The assessments were framed by the ACIT, Corporate Circle 3(2), Chennai for the assessment years 2012-13 & 2016-17
I.T.A. Nos.542 & 1689/Chny/2019 2 U/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) vide orders of different dates 19.03.2016 & 29.12.2018.
The first common issue in these two appeals of assessee is as regards to the order of CIT(A) confirming the disallowance of weighted deduction on research & development expenditure incurred (both capital and revenue expenditure) and claimed u/s.35(2AB) of the Act amounting to Rs.1,10,54,154/- in assessment year 2012-13 and Rs.16,89,81,370/- for the assessment year 2016-17.
For the assessment year 2012-13, the AO noted that the assessee has claimed deduction u/s.35(2AB) of the Act for an amount of Rs.12,90,40,773/-and it had filed Form 3CL certified & issued by DSIR, whereby it was found that the assessee is eligible for deduction for an amount of Rs.11,79,85,276/- and accordingly, on the basis of certificate issued by DSIR in Form No.3CL dated 21.07.2014, the AO restricted the deduction u/s.35(2AB) of the Act, for an amount of Rs.11,79,85,276/-. Thereby, the AO disallowed the excess amount claimed by the assessee at Rs.1,10,54,154/- and added back to the returned income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).
I.T.A. Nos.542 & 1689/Chny/2019 3 4. The CIT(A) also confirmed the action of AO by stating that “However the Assessing Officer is not prevented from optionally acting on the report to 1.7.2016. The distinction deserves to be made. It is normal on the part of the assessee to claim a deduction for which it is not entitled to. The order of the Assessing Officer in reducing the deduction, by acting on the contents of M/s DSIR report, cannot be assailed. If it is allowed, it would amount to curtailing the discretion of the Assessing Officer. The objections of the assessee are rejected and the restriction of deduction u/s 35(2AB) by an amount of Rs.1,10,54,154/- is upheld. The grounds on this issue are rejected.” Aggrieved, now assessee is in appeal before the Tribunal.
The ld.AR for the assessee admitted that in assessee’s own case for the assessment year 2014-15 in ITA No.2606/Chny/2019, order dated 26.12.2019, the issue is covered against the assessee vide para 7. However, ld.AR for the assessee stated that this issue is covered in favour of assessee also by the following case laws:- (i) Karnataka High Court in the case of Tejas Networks Ltd., vs. DCIT, [2015] 233 Taxman 426 (ii) ITAT, Pune Bench in the case Cummins India Limited vs. DCIT, ITA No.309/PUN/2014 dated 15.05.2018
I.T.A. Nos.542 & 1689/Chny/2019 4 (iii) ITAT, Bangalore Bench in the case of Kumar Organic Products Limited v. DCIT in ITA Nos. 1057 to 1062/Bang/2019 dated 19.07.2019 (iv) ITAT, Bangalore Bench in the case of Mahindra Electric Mobility Limited vs. ACIT, in ITA No. 641/Bang/2017 dated 14.09.2018 (v) ITAT, Bangalore Bench in the case of Provimi Animal Nutrition India Private Limited vs. PCIT, [2021] 124 Taxmann.com 73
On the other hand, the ld.CIT-DR stated that when the issue is covered in assessee’s own case and wherein the decision of ITAT, Pune Bench in Cummins India Ltd, supra, Electronic Corporation Ltd., of ITAT Hyderabad Bench in ITA No.1106/Hyd/2011 and Tejas Networks Limited of Karnataka High Court, supra was considered and disallowance was made. He stated that ld.counsel for the assessee himself has accepted that the facts are identical.
After hearing both the sides and going through the fact that the assessee could not make any distinction on facts from assessment year 2014-15 to the current assessment year. As the facts are identical and issue is covered in assessee’s own case for assessment year 2014-15, wherein the Tribunal has considered this issue vide para 7 as under:- “7. Coming to the case law relied on by the assessee in the case of Cummins India Limited v. DCIT in I.T.A No. 309/Pun/2014 dated 15.05.2018, the Pune Bench of the Tribunal has observed at para 46 that the first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to
I.T.A. Nos.542 & 1689/Chny/2019 5 look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. The above findings of the Pune Bench are contrary to the amended Rule of the Income Tax Rules, 1962, wherein, the prescribed authority i.e., DSIR was empowered in 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, when in the case of Electronic Corporation of India Ltd. v. ACIT (supra), the Hyderabad Bench of the Tribunal has observed as under:
“17. As per the provisions of sec 35(2AB) of Act as applicable to the relevant Assessment year , the expenditure incurred by the assessee in any approved in-house research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150% of such approved expenditure. Therefore, the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certificate has certified expenditure eligible for weighted deduction as Rs.3,126.02 lakhs. Therefore, it is not for either the assessing authority or the appellate authority to decide on the expenditure which will be entitled to weighted deduction u/s.35(2AB). In fact, U/s.35(2AB)(3) if any question arises u/s.35 as to whether and if so, what extent any activities constitutes or constituted or any asset was used for scientific research, the matter should be referred to the appropriate authority whose decision will be final. In this case the appropriate Authority is the DSIR. Therefore once the DSIR has certified the quantum of eligible R&D expenditure for the purposes of weighted deduction u/s 35(2AB) the figure cannot be tampered with by ITAT. Even if the assessee is right in that the there is a mistake in the certificate issued by the DSIR, which we don't know, the same can only be rectified by DSIR and not the ITAT in appellate proceedings. We, therefore, uphold the decision of lower authorities in restricting the weighted deduction u/s.35(2AB) to Rs.46,89,03 lakhs and disallowing sum of Rs.1,69,73,987 out of the claim made by the assessee. We, however, direct that in case DSIR corrects the amount of research and development expenditure on which the assessee is entitled weighted deduction for the assessment year under appeal, corresponding weighted deduction u/s.35(2AB) shall be granted on receipt of the clarification from DSIR. Consequentially if the assessee is able to prove that any amount of expenditure in their
I.T.A. Nos.542 & 1689/Chny/2019 6 in-house research and development facilities was omitted to be considered by the DSIR for weighted deduction the same may be allowed as a deduction u/s.35/ 37 of the Act. With this observation we dismiss the appeal of the assessee on this issue.”
Further in the case of Tejas Networks Ltd. v. DCIT [2016] 60 taxmann.com 309, the Hon’ble Karnataka High Court has observed as under: A plain reading of Section 35(2AB) would clearly indicate that where a company is engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) or in-house research and development facility as approved by the prescribed authority, then, they shall be allowed a deduction of a sum equal to one and a half times of the expenditure so incurred. The word used 'shall' in the above said provision would ordinarily mean that it should be understood in the context in which it is used and there cannot be departure in this regard. The said provision would also indicate that such expenditure as approved by the prescribed authority would be entitled for being allowed as a weighted deduction. There being no dispute to the fact that DSIR being the prescribed authority in the instant case, had issued the report in Form No. 3CL - Annexure - M certifying the total R&D expenditure (excluding land and buildings) as prescribed under Section 35(2AB) for a sum of Rs. 4,601.9 lakhs as against the claim of Rs. 5,957 lakhs made by the assessee in the return of income and as such, neither the second respondent nor first respondent could have sat in judgment over the said certificate issued by the prescribed authority. In other words, when the prescribed authority had certified the extent of expenditure which would be allowable, the assessing officer could not have sat in appeal over such certification made by the prescribed authority. The allowability or otherwise of such expenditure cannot be the subject matter of scrutiny by the assessing officer. It would also be required to be noticed that the assessing officer would be out of bounds to examine as to whether such expenditure as certified by the prescribed authority can be allowed or disallowed under Section 35 of the Act. In other words, the assessing officer is precluded from examining the correctness or otherwise of the certificate issued by the prescribed authority on the ground that it is either being contrary
I.T.A. Nos.542 & 1689/Chny/2019 7 to facts or contrary to the express provisions of the Act. It would not be out of context to state that when assessee files the report issued by the prescribed authority, as indicated under Section 35(2AB), before the jurisdictional assessing officer and seeks for allowability of such expenditure, the Assessing Officer would be exceeding in his jurisdiction, if he were to undertake the exercise of examining as to whether the certificate issued by the prescribed authority is within the parameters of statutory provisions of the Act or otherwise…………………”
From the above decision of the Hyderabad Bench of the Tribunal as well as the decision of the Hon’ble Karnataka High Court, it is clear that the prescribed authority viz., the DSIR is the authority in 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. There is no vested right of the tax payer in the procedures. The amendment made in the Income Tax Rules, 1962, which is coming into force on 01.07.2016, whereby, the DSIR is directed to quantify the expenditure incurred on in-house research and development facility by the assessees incurred during the previous year cannot be said to have adversely affected or restricted the substantive right of the tax payer and no prejudice said to have been caused by the said amendment of Income Tax Rules, 1962 to the assessee and in fact, the DSIR, who is a technical body is well equipped to assessee to quantify the expenses incurred by the tax payer on in-house research and development. Hence, all reports in Form 3CL shall be issued by the DSIR effective from 01.07.2016 which should include in “Part B” is to quantification of the expenses incurred by the tax payers in in-house research in terms of section 35(2AB) of the Act. Hence, the contention of the assessee has no legs to stand and is out rightly rejected. Thus, the entire claim of weighted deduction claimed by the assessee cannot be acceded to over and above the restriction made by the DSIR. In view of the above facts and circumstances and case law relied on, we are of the considered opinion that the ld. CIT(A) has rightly directed the Assessing Officer to allow the correct amount of deduction under section 35(2AB) of the Act after taking note of the DSIR certificate dated 16.03.2017. Thus, the ground raised by the assessee stands dismissed.”
I.T.A. Nos.542 & 1689/Chny/2019 8 As the issue is fully covered against the assessee and in favour of Revenue by the Co-ordinate Bench of this Tribunal, respectfully following the same, we dismiss this issue of assessee’s appeal in assessment year 2012-13.
As regards to the issue in assessment year 2016-17, the ld.AR for the assessee stated that the disallowance of weighted deduction on research & development expenditure incurred, both capital and revenue expenditure, due to non-receipt of Form No.3CL issued by DSIR amounting to Rs.16,89,81,370/-. The ld.AR for the assessee stated that in assessee’s case inhouse R&D facility was approved by DSIR vide Form 3CM dated 21.07.2014 and a report from an Accountant for Form 3CLA dated 29.11.2016 was filed before DSIR on 01.12.2016. The ld.AR stated that DSIR has asked for clarification vide letters dated 07.01.2021 & 20.07.2021, which was replied on 05.06.2021 & 27.07.2021 respectively. According to ld.AR, the assessee has not received approval from DSIR still date, which is pending. The ld.AR stated that he will again approach DSIR and for that, he requested that matter can be set aside to the file of the AO to await the decision of DSIR. To this proposal, the ld.CIT- DR agreed.
I.T.A. Nos.542 & 1689/Chny/2019 9 9. After hearing both sides and as plea made by ld. AR for the assessee, we remit this issue back to the file of the AO who will decide the issue as per the report received from DSIR, as per law. Needless to say, that the assessee is free to raise any issue before AO on this particular issue as per law. The AO will not object for non-consideration of issue. Accordingly, this issue of assessee’s appeal for assessment year 2016-17 is remanded back to the file of the AO. We direct the AO accordingly.
The next issue in ITA No.592/Chny/2019 for assessment year 2012-13 is as regards to the order of CIT(A) confirming the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act, read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the ‘Rules’) amounting to Rs.8,06,000/-.
At the outset, the ld.AR for the assessee stated that the assessee has not earned any exempt income and not claimed any exempt income in the return of income. The ld.AR further stated that the AO while framing assessment has made disallowance under Rule 8D(2)(ii) at Rs.31,000/- and under Rule 8D(2)(iii) at Rs.7,75,000/-, thereby total disallowance u/s.14A of the Act was
I.T.A. Nos.542 & 1689/Chny/2019 10 made at Rs.8,06,000/-. The CIT(A) upheld the disallowance. Aggrieved, the assessee is in second appeal before the Tribunal.
The ld.AR for the assessee before us stated that the assessee before CIT(A) has made a categorical statement that the assessee has not earned any exempt income and no exempt income was claimed by the assessee in its computation. According to the ld.AR, the issue is covered by the decision of Hon’ble High Court of Madras in the case of CIT v. Chettinad Logistics (P) Ltd., (2017) 80 taxmann.com 221. He further stated that the Hon’ble Supreme Court has deleted the SLP filed by Revenue in the case of CIT v. Chettinad Logistics (P.) Ltd., [2017] 80 taxmann.com 221.
We noted that this issue is squarely covered in favour of assessee by the decision of Hon’ble Supreme Court in the case of Chettinad Logistics (P.) Ltd., supra, wherein it was held that that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. As the issue is squarely covered in favour of assessee, we delete the disallowance and direct the AO to recompute the income. Accordingly, this issue of assessee’s appeal is allowed.
I.T.A. Nos.542 & 1689/Chny/2019 11 14. The next issue in this appeal of assessee in ITA No.542/Chny/2019 for assessment year 2012-13 is as regards to the order of CIT(A) confirming the addition made by AO for an amount of Rs.16,77,044/- on account of non-reconciliation of income as per Form 26AS and income as offered by assessee.
The AO during the course of assessment proceedings noted that there is a difference between income credited as per Form No.26AS and income offered by assessee in its computation of income. The AO noted that the assessee has not reconciled the figure and hence, he made addition of Rs.16,77,044/-. The CIT(A) confirmed the action of AO. Now, before us the ld.AR for the assessee stated that the AO cannot make addition on the basis of Form No.26AS, as Form No.26AS is updated on the basis of TDS returns filed by the deductors. The ld.AR stated that the difference was mainly due to deduction of tax deducted at source by the deductor on the amount including service tax. Hence, according to him tax was deducted at source on the service tax portion also. The ld.AR before us filed a statement containing reconciliation for majority of difference and he pleaded that from the reconciliation statement, it is evidence that the tax was deducted at source on service tax amounting to Rs.13,61,934/-. When these Form
I.T.A. Nos.542 & 1689/Chny/2019 12 No.26AS and reconciliation filed by assessee are confronted to ld.CIT-DR, he fairly conceded that this reconciliation should have been submitted before the AO but on principle, he agreed that in case the difference was mainly due to deduction of tax at source by the deductors on the amount of service tax, the same can be deleted by the AO.
As both agreed that the issue is simply of reconciliation, we remit this issue back to the file of AO, who will verify the reconciliation statement viz-a-viz Form No.26AS and after verification, he will decide the claim of assessee. Accordingly, this issue of assessee’s appeal is allowed for statistical purpose and set aside to the file of AO.
The assessee has raised one common issue by additional ground, as regards to deduction of cess as an allowable expenditure.
17.1 At the outset, the ld.AR for the assessee stated that the assessee do not want to press this issue in view of Finance Bill 2022, through clause 13 makes it clear that cess is a part of tax and hence, assessee do not want to pursue this additional ground.
I.T.A. Nos.542 & 1689/Chny/2019 13 Since the assessee itself has not pressed this additional ground in both the appeals, the same is dismissed as withdrawn.
In the result, both the appeals filed by the assessee are partly allowed for statistical purpose.
Order pronounced in the court on 30th March, 2022 at Chennai.
Sd/- Sd/- (महावीर �सह ) (मनोज कुमार अ�वाल) (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा�य� /VICE PRESIDENT लेखा सद�य /ACCOUNTANT MEMBER चे�ई/Chennai, �दनांक/Dated, the 30th March, 2022 RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.