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Income Tax Appellate Tribunal, ‘B’ BENCH, PUNE
Before: SHRI INTURI RAMA RAO & SHRI PARTHA SARATHI CHAUDHURY
ORDER
PER SHRI PARTHA SARATHI CHAUDHURY, JM :
1. This appeal preferred by the assessee emanates from the order of the ld. CIT(A)-7, Pune, 11-12-2017 for A.Y. 2012-13 as per the following grounds of appeal.
The grounds of appeal
are without prejudice to one another.
2. The ld. CIT(A) erred in confirming disallowance of Rs. 45.65 lakhs being weighted deduction u/s 35(2AB) claimed by the Appellant towards revenue expenditure being consultation fees which were actually in the form of remuneration and the entire R & D activities were carried out in the appellant company’s premises.
3. The ld. CIT erred in holding that the claim of Appellant u/s 35(2AB) cannot be allowed without certification by the DSIR.
4. The Appellant craves leave to add, amend, alter, delete or substitute all or any of the above grounds of appeal
.”
2. The solitary grievance of the assessee is the confirmation of disallowance of Rs. 45.65 lakhs being weighted deduction u/s 35(2AB) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) claimed by the assessee towards revenue expenditure being consultation fees which were disallowed by the ld. A.O and confirmed by the ld. CIT(A).
2 ITA 436/PUN/2018 Kirloskar Integrated Technologies A.Y. 2012-13
The brief facts in this case are that the assessee-company is engaged in developing, providing and executing sustainable solutions derived from Biomass or Biogas, Solar photovoltaic (SPV), Solar concentrate PV (CPV), Hydrokinetic tidal marine turbines and Fuel cells. During the scrutiny proceedings, it was pointed out to the assessee by the ld. A.O that as per Form 3CL received from Department of Scientific and Industrial Research (hereinafter referred to as “DSIR’) revenue expenditure of Rs. 79.36 lakhs and capital expenditure of Rs. 23.34 lakhs only were eligible for deduction u/s 35(2AB) of the Act. However, the assessee has claimed Rs. 124.01 lakhs as revenue expenditure. In this regard, the assessee filed written submissions before the ld. A.O which is on record. Having considered the said submissions, the ld. A.O observed vide para 4 and 4.1 that from the appointment letter it is noticed that Ms. Jaymala A. Naik has been appointed on contract as Patent Officer and had no direct role in-house research work. Similarly, Dr. Nitant Mate was appointed on contract as a Consultant and Mr. Nilesh Deshpande was also appointed on contract for a limited tenure. All the above-mentioned persons do not constitute part of research and therefore only consultancy fees were paid to them for services rendered. As such, the consultation services provided by the above mentioned three individuals could not be accorded the status of in-house research and development facilities as stipulated u/s 35(2AB) of the Act for claiming weighted deduction. Therefore, the ld. A.O held that in respect of Rs. 44.65 lakhs incurred for acquiring consultancy services of the aforesaid three professionals the assessee is not eligible for weighted deduction u/s 35(2AB) of the Act. The ld. A.O further observed that as per report of the DSIR, New Delhi, the said expenditure of Rs. 44.65 lakhs incurred by the assessee for consultancy fees was not eligible for weighted deduction u/s 35(2AB) of the Act.
The ld. CIT(A) on this issue observed and held as follows:
3 ITA 436/PUN/2018 Kirloskar Integrated Technologies A.Y. 2012-13
6.3 I have considered the facts of the case and law apparent from records. The assessee has filed original return of income on 25-09-2013 declaring total income of Rs. NIL. The AO noticed that the assessee has claimed deduction u/s 35(2AB) in respect of revenue expenditure of Rs. 124.01 lakhs. The DSIR prescribed authority for issuing certificate in Form No. 3CL to claim deduction u/s 35(2AB). The DSIR reduced the eligible amount to Rs. 79.36 lakhs in form No. 3CL dated 15- 04-2014. The reduced amount pertains to salary of the R & D Officer and head of the R & D. The AO sought explanation of the assessee to disallow the excess claim of Rs. 44.65 lakhs u/s 35(2AB) and the assessee submitted its reply to the AO. The AO after considering the reply of the assessee rejected the claim of the appellant/assessee and disallowed the claim of deduction u/s 35(2AB) to the extent of Rs. 45.65 lakhs. 6.4 During the appellate proceedings, the appellant reiterated its stand.
6.5 Ostensibly, the expenditure of Rs. 44.65 lakhs (Revenue expenditure) were not considered as qualifying amount for deduction u/s 35(2AB) inform No. 3CL by the prescribed authority DSIR. There is no question of allowing deduction u/s 35(2AB) on Rs. 44.65 lakhs without certification by the DSIR. If contention of the appellant is allowed the certification of the DSIR will become futile. Unless the appellant gets revised/new certificate from DSIR in form No. 3CL mentioning such amount as qualifying amount for the purpose of DSIR deduction u/s 35(2ab) cannot be allowed. Apparently, the appellant has stated the company will take up the matter with DSIR does not mean that the qualified amount has been enhanced by the DSIR. Therefore, at this juncture the contention of the appellant is without any supporting evidence. Accordingly, the action of the AO in disallowing the weighted deduction u/s 35(2AB) in respect of revenue expenditure of Rs. 44,65,497/- is upheld and ground No. 2, 3 and 4 of the appeal are dismissed.
In the aforestated decision of the ld. CIT(A), it was observed that the expenditure of Rs. 44.65 lakhs being revenue expenditure were not considered as qualifying amount for deduction u/s 35(2AB) of the Act in form No. 3CL by the prescribed authority DSIR. He held that there was no question of allowing deduction u/s 35(2AB) on Rs. 44.65 lakhs without certification from the DSIR.
At the time of hearing, the ld. A.R of the assessee submitted that so far as the approval part of the DSIR is concerned, Pune Tribunal in the following cases have held that such certification is not required from DSIR in order to claim weighted deduction: -
(a) for A.Y. 2009-10 (Cummins India Ltd. Pune Vs. The Dy. CIT Circle 1(1) Pune, order dated 15-05-2018. (b) ITA No. 1130/PUN/2017 for A.YL 2012-13 (Kirloskar Oil Engines Ltd. Vs. DCIT Circle 14, Pune, order dated 11-11-2021.
4 ITA 436/PUN/2018 Kirloskar Integrated Technologies A.Y. 2012-13
However, in the present case before us, having gone through the orders of the subordinate authorities, we observe that the ld. A.O noticed that the assessee had actually claimed Rs. 124.01 lakhs as revenue expenses. However, the DSIR have not found the expenses of Rs. 44.65 lakhs incurred for consultancy fees as eligible for weighted deduction u/s 35(2AB) of the Act in respect of these individuals employed for consultation purposes. In this regard, the ld. A.O had observed that those three professionals who do not constitute part of in-house research and therefore, only consultancy fees were paid to them for their services rendered and as such the consultancy services of those three individuals cannot be given the status of in-house research and development facilities as stipulated u/s 35(2AB) for weighted deduction and hence the claim was disallowed. It was upheld by the ld. CIT(A) on the ground that such certification was also not provided by the DSIR where the said amount of Rs. 44.65 lakhs incurred for consultancy fees could be said to be eligible for weighted deduction u/s 35(2AB) of the Act. In fact, the DSIR had rejected expenses of Rs. 44.65 lakhs incurred for consultancy services to be part of weighted deduction u/s 35(2AB) of the Act. We find that neither before the A.O nor before the ld. CIT(A) the assessee was able to substantiate the claim of revenue expenditure in respect of Rs. 44.65 lakhs. It is not apparent either from the order of the ld. A.O or from the ld. CIT(A)’s order what relevant evidences/materials were provided by the assessee in order to substantiate its claim for weighted deduction u/s 35(2AB) of the Act. Whether the assessee was able to justify the alleged consultancy services paid to the concerned three professionals and whether those can be brought within the status of in-house research and development facilities, no such evidence is apparent in the orders of the subordinate authorities and whether at all, the assessee had submitted such evidences before them. In this regard, the ld. A.R was asked to submit by the Bench an 5 ITA 436/PUN/2018 Kirloskar Integrated Technologies A.Y. 2012-13 Affidavit stating the entire documentation and evidences submitted before the ld. A.O. and ld. CIT(A) vide an affidavit. The Affidavit filed by the ld. A.R of the assessee is made part of this order, which is as follows:
“AFFIDAVIT Before the Honourable Income-tax Appellate Tribunal, Pune Bench In the matter of M/s. Kirloskar Integrated Technologies Pv.t. Ltd (formerly known as Kirloskar Integrated Technologies td.) for AY 2012-13.
I, Mr. Uday Bhende s/o Yashwant Bhende aged 69 years, resident of Row House No. 2, Melody Society, 12, ICS Colony, Near Pune University, Shivajinagar, Ganeshkhind, Pune-411 007 do solemnly affirm and state on oath as under:
1. 1. That am the Director of the assessee-company M/s. Kirloskar Integrated Technologies Pvt. Ltd. (formerly known as Kirloskar Integrated Technologies Ltd.) and hence am fully conversant of the facts deposed below: 2. That the assessee company has filed an appeal before the Hon'ble ITAT Pune Bench on 08-03-2018 bearing the physical hearing for which was conducted on 12th September 2022 before the Hon'ble bench.
3. That the Hon'ble Bench members instructed the assessee company to file an affidavit stating that the agreements entered into with the R & D Professionals namely, Dr. Nitant Mate, Ms. Jaymala A. Naik and Mr. Nilesh Deshpande, appointed for the in-house Research & Development unit of the assessee company were submitted by the assessee company during the respective proceedings before the A.O and before the Hon'ble CIT(A).
4. That, the assessee company had submitted the subject agreements entered into with the R & D Professionals namely, Dr. Nitant Mate, Ms. Jaymala A. Naik and Mr. Nilesh Deshpande, appointed for the in-house Research & Development unit of the assessee company before the A.O vide its letter dated 181-03-2015 submitted on 19-03-2015.
5. That, the assessee company had submitted the subject agreements entered into with the R & D Professionals namely, Dr. Nitant Mate, Ms. Jaymala A. Naik and Mr. Nilesh Deshpande, appointed for the in-house Research & Development unit before Hon'ble CIT(A) vide letter dated 05-12-2017 and submitted on same date.
6. That the subject agreements entered into with the R & D Professionals namely, Dr. Nitant Mate, Ms. Jaymala A. Naik and Mr. Nilesh Deshpande, were already on record with the A.O as well as the CIT(A). Verification I, Mr. Uday Bhende, the above-named deponent do hereby verify that the contents of this affidavit from paras 1 to 6 are true to the best of my knowledge and belief. For M/s. Kirloskar Integrated Technologies Pvt. Ltd. Sd/- Mr. Uday Bhende Before me SEAL OF Director sd/- NOTARY Date: 14th September 2022. Shashikant B. Kurhade Place: Pune. Notary Govt. of India
6 ITA 436/PUN/2018 Kirloskar Integrated Technologies A.Y. 2012-13 Noted and Registered At Sr.No. B-3245/2022 Date: 14th Sept. 2022.
The ld. A.R further submitted that they are willing to appear before the ld. A.O and once again demonstrate before him substantially on merits how the disallowed expenditure as disallowed by the revenue authorities also qualifies for weighted deduction u/s 35(2AB) of the Act. That, from the aforestated Affidavit the assessee submits that they have submitted various agreements entered into with the Research & Development Professionals, viz. Dr. Nitant Mate, Ms. Jaymala A. Naik and Mr. Nilesh Deshpande, before the ld. A.O as well as before the ld. CIT(A). However, these statements need detailed factual verification for adjudicating the issue. We are of the considered view, therefore, that the matter should be restored to the file of the ld. A.O for adjudication as per law and as prayed for by the assessee. They should provide all evidences/documents to substantiate their claim of weighted deduction u/s 32(2AB) of the Act before the ld. A.O. The ld. A.O shall complete the hearing complying with the principles of natural justice. Accordingly, we set aside the order of the ld. CIT(A).
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on this 15th September 2022. Sd/- sd/- (INTURI RAMA RAO) (PARTHA SARATHI CHAUDHURY) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated, this 15th day of September 2022 Ankam Copy of the Order forwarded to :
1. 1. The Appellant. 2. The Respondent. 3. The Pr. CIT- 6, Pune . 4. The CIT (A)-7 Pune 5. The D.R. ITAT ‘C’ Bench Pune. 6. Guard File BY ORDER, /// TRUE COPY /// Sr. Private Secretary ITAT, Pune
7 ITA 436/PUN/2018 Kirloskar Integrated Technologies A.Y. 2012-13 Date 1 Draft dictated on 12-09-2022 Sr.PS 2 Draft placed before author 13-09-2022 Sr.PS 3 Draft proposed and placed before the JM/AM second Member 4 Draft discussed/approved by second AM/JM Member 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order