DCIT 4(2)(2), MUMBAI vs. MEGA FINE PHARMA P, LTD, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief to the assessee on account of weighted deduction u/s 35(2AB) even though the application for the Form 3CM was submitted to the DSIR on 18.09.2013 and Form 3CM was valid from 01.04.2013 to 31.03.2016.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief to the assessee on account of weighted deduction u/s 35(2AB) without considering the fact that in the case of ACIT vs. MECO instruments, the assessee applied for the Form 3CM and did not receive in that particular F.Y. but in the present case there is no evidence and assessee also failed to prove that they were applied for the Form 3CM in the year under consideration.

3. The appellant craves leave to amend or alter any ground or add new ground which may be necessary.”

4. The brief facts of the case are that the assessee filed its return of income on 23.09.2011 declaring total income to the tune of Rs.5,53,78,331/-. The case was selected for scrutiny and thereafter, the assessment u/s 143(3) of the Act was passed on 11.02.2014 assessing total income to the tune of Rs.6,24,36,150/-. The case of the assessee was further reopened by issuance of notice u/s 148 of the Act on 17.03.2015. The reasons for reopening were supplied by virtue of letter dated 20.07.2015. Thereafter, the notice u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was engaged in the business of manufacturing of the dealing bulk drugs and chemicals. It was observed that the assessee company has claimed deduction u/s 35(2AB) of the I. T. Act, 1961 amounting to Rs.3,56,18,753/- as expenses on in-house R & D (being the 200% of R & D expenditure of Rs.1,78,09,377/-). The notice was given and after the reply of the assessee, the Research and Development Expenses which pertains to in House Development Expenses to 5681/M/2017 A.Ys. 2011-12, 2012-13 & 2013-14 amounting to Rs.1,78,09,376/- was allowed as business expenses u/s 37. The total disallowance worked out of Rs.1,78,09,377/- (Rs.3,56,18,753/- (-) 1,78,09,377/-). Thereafter, the total income of the assessee was assessed in sum of Rs.8,02,45,520/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) and the CIT(A) allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.

It is found from the records that though the judgment of honourable of ITAT Mumbai in case of Meco Instruments I'. Ltd was brought to the notice of the AO at the time of assessment, he has not dealt with the same in his order and without distinguishing the same he has failed to follow the same.

The AR of the appellant has given a comparative study of appellant's case with Meco Instruments P. Ltd, where the honour able IlAT Mumbai, has categorically held as under: it is clear that merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribed procedure, the exemption provisions have to be liberally construed and if in substance, the assessee has fulfilled the basic requirements then the exemption cannot be denied.

6.3. I have considered the facts of the case as well as assessment order passed by the AG and the submission of the appellant. The AR of the appellant has produced following documents in support of his submissions and claim of weighted deduction u/s. 35(2AB) to 5681/M/2017 A.Ys. 2011-12, 2012-13 & 2013-14 a. Application for recognition of in-house R & D Unit dated 11/03/2010 submitted to DSJR on 15/03/2010 along with Form 3CC b. DSIR recognition letter dated 21/09/2010. c. Judgment of Hon'ble ITAT in case of Meco Instruments P. Ltd. d. Annual compliance letter for approved R & D unit dated 05/08/2013. e. Application letter seeking approval u/s 35(2AB) dated 18/09/2013. g. DSIR submission of report in Form 3CL dated 28/12/2015. h. Application for renewal and recognition letter dated 30/12/2015.

It is found from the records that though the judgment of Hon’ble ITAT, Mumbai in the case of Meco Instruments P. Ltd was brought to the notice of the AO during the course of assessment proceedings, the AO has not dealt with the same in his order and without distinguishing the same he has failed to follow the same.

The AR of the appellant has given a comparative study of appellant's case with Meco Instruments P. Ltd., which has been narrated in earlier paragraph and for the sake of brevity; the same is not being repeated here. In this case, the Hon’ble ITAT, Mumbai, has categorically held as under: it is clear that merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribed procedure, the exemption provisions have to be liberally construed and if in substance, the assessee has fulfilled the basic requirements then the exemption cannot be denied. to 5681/M/2017 A.Ys. 2011-12, 2012-13 & 2013-14 After considering the submissions and the explanations and factual narration of the caseby the Ld.AR, the factual analysis regarding the facts and the similarity of ratio of thepresent appellant case i.e, Mega Fine Pharma P Ltd. and the Meco Instruments Pvt. Ltd. can be depicted as under:

Issues Facts of Meco Facts of Mega Fine Remark Assessment Year 2005-06 2011-12, 2012-13 & 2013- 14 Deduction u/s 35(2AB) Weighted Deduction Weighted Deduction Same Position Claimed Claimed Details of R & D activities & Submitted at the time of Submitted to AO Same Position Expenditure assessment Form 3CM &3CL Not obtained Not obtained Same Position Form 3CK Not submitted Submitted to DSIR Copy Better compliance by Mega fled with AO Fine Approval of Recognition Obtained & submitted to Obtained & submitted to Same Position From Ministry of Science & AO AO Technology for in house $ & D Unit Approval Signed By Scientist Scientist Same Position Director Remuneration & Claimed under weighted Not claimed as weighted Better compliance by Mega foreign Travel Deduction deduction Fine Form 3CK filed later Filed on 28.04.2008 Filed on 15.03.2010 Non-compliance by Meco Instruments &Full Compliance by Mega Fine Audited Accounts Not submitted to DSIR Submitted to DSIR n Subsequent Compliance by 18.09.2013 mega Fine & No Compliance by Meco Instruments Opportunity by DSIR Not given Not given Same Position Rejection by Competent No order Passed Not order Passed Same Position authority to 5681/M/2017 A.Ys. 2011-12, 2012-13 & 2013-14 Findings of ITAT

Unit is duly approved & Same Position recognized Recognition is not meant for tax exemption Recognition Renewed from Same position time to time

AO raised objection for first Weighted Deduction was time in AY 2005-06 initially allowed and later disallowed by reopening on a change of opinion.

Final Verdict Merely on the grounds of technicalities of procedure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribe ed procedure, the exemption provisions have to be liberally construed and if in substance, the assessee has fulfilled the basic requirements then the exemption cannot be denied.

Thus, on careful considerations of the facts of Meco Instruments (supra) and the case in hand, it may be found that facts of both the cases are identical and therefore, I am inclined to follow the judgment of Meco Instruments P. Ltd for deciding the allow- ability of weighted deduction claimed by the appellant u/s. 35(2AB).

Further, the Ld.AR has explained that the AO itself has found that most of the R&D expenses pertain to raw material purchases- and salary of the employees which are revenue in nature. The assessee company has already submitted bills and vouchers of the Research to 5681/M/2017 A.Ys. 2011-12, 2012-13 & 2013-14 and Development expenses which pertain to in house R&D unit of the assessee company.

Therefore, the expenses incurred for in house R&D unit of appellant company are supported by bills and vouchers and duly verified by the AO. Hence, duly following the judgment of ITAT Mumbai in case of Meco Instruments P. Ltd, the weighted deduction claimed by the appellant u/s 35(2A5) is allowable and the AO is directed to allow the claim of the appellant. However, this is subject to the fact that if in future the decision of Hong,le ITAT Mumbai in the case of Nieco Instrument P.Ltd. is modified or reversed at higher judicial forum namely, The Hon'ble High Court and Hon'ble Supreme Court, such claim of the appellant will have to be withdrawn by the AO and the AO will be free to take remedial measures as per Income Tax Law.

In the result, these grounds of appeal No.4 to 6 are to be treated as Allowed.”

6. On appraisal of the above mentioned finding, we noticed that the CIT(A) has allowed the claim of the assessee on the basis of decision of Hon’ble ITAT Mumbai in the case of Meco Instruments Pvt. Ltd. In this case also, the expenses incurred on in-house R & D was allowed. The expenses incurred for in-house R&D unit of appellant company are supported by bill and vouchers and duly verified by the AO. The facts are not distinguishable at this stage. The facts in the case of Meco Instruments Pvt. Ltd. (supra) is quite identical to the facts of the present case also. There is nothing on record to which it can be assumed that the law settled in Meco Instruments Pvt. Ltd. (supra) has been changed or varied, therefore, in the said circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be ITA. Nos.5679 to 5681/M/2017 A.Ys. 2011-12, 2012-13 & 2013-14 interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. In the result, the appeal filed by the revenue is hereby dismissed. & 5681/M/2017:- 7. The facts of the present case are quite similar to the fact of the case as narrated above while deciding the ITA. No.5679/M/2017, therefore, there is no need to repeat the same. However, the figure is different. The matter of controversy is also the same. The finding given above in ITA. No.5679/M/2017 is quite applicable to the facts of the present case as mutatis mutandis and accordingly we dismiss the appeals of the revenue.