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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
Captioned cross appeals arise out of order dated 15th March 2018, passed by the learned Commissioner of Income Tax (Appeals)– 8, Mumbai, pertaining to the assessment year 2014–15.
./2018 Revenue’s Appeal
Grounds raised by the Revenue are on the common issue of allowance of assessee’s claim of deduction under section 35(2AB) of the Income Tax Act, 1961 (for short "the Act").
Brief facts are, the assessee company is engaged in the business of manufacturing and trading of pharmaceutical products. For the assessment year under dispute, the assessee filed its return of income on 29th November 2014, declaring total income of ` 17,36,59,140, under the normal provisions of the Act and book profit of ` 17,63,04,614, under section 115JB of the Act. In course of the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction of ` 2,25,14,000, under section 35(2AB) of the Act called upon the assessee to furnish necessary details and also justify the deduction claimed. In response, it was 3 M.J. Biopharm Pvt. Ltd.
submitted by the assessee that it has a in–house Research & Development (R & D) facility approved by the prescribed authority. It was submitted, during the year under consideration, the assessee had incurred expenditure of ` 1,12,57,000, towards R&D activity in the in- house R & D facility and has accordingly claimed deduction @ 200% of the expenditure incurred as per section 35(2AB) of the Act. After considering the submissions of the assessee in the context of facts and material on record, the Assessing Officer observed that though the assessee has furnished copy of approval received in Form no.3CM from the Department of Scientific and Industrial Research (DSIR) containing approval given to the R & D facility, however, it has not submitted any approval in Form no.3CL for the expenditure incurred in R & D activity. Accordingly, he disallowed assessee’s claim of deduction under section 35(2AB) of the Act and added back to the income of the assessee. Being aggrieved with such disallowance, assessee preferred appeal before the first appellate authority.
In course of hearing before the learned Commissioner (Appeals), the assessee furnished the approval of expenditure granted by DSIR in Form no.3CL which could not be furnished during the assessment proceedings. After considering the submissions of the assessee and perusing the approval granted by the DSIR in Form no.3CL, learned Commissioner (Appeals) found that the prescribed authority has 4 M.J. Biopharm Pvt. Ltd.
certified/approved an amount of ` 97.26 lakh as expenditure incurred for scientific research. Accordingly, he held that assessee is eligible to claim deduction under section 35(2AB) of the Act for an amount of ` 1,94,52,000, being 200% of the expenditure approved by the DSIR. Further, he observed, since there is no dispute by the Assessing Officer that the assessee has incurred expenditure of ` 1,12,57,000, in research activity, the balance amount of ` 15.31 lakh over and above the expenditure approved by the DSIR of ` 97.26 lakh, would be allowable to the assessee as business expenditure. Therefore, he restricted the disallowance under section 35(2AB) of the Act to an amount of ` 15.31 lakh. However, he directed the Assessing Officer to allow deduction under section 35(2AB) of the Act after verifying the Form no.3CL.
The learned Departmental Representative submitted, assessee did not furnish Form no.3CL, during the assessment proceedings and it was submitted only before the first appellate authority. He submitted, without giving an opportunity to the Assessing Officer to verify Form no.3CL and submit his report, learned Commissioner (Appeals) allowed assessee’s claim of deduction under section 35(2AB) of the Act which is in violation of rule 46A of the Income Tax Rules, 1962. Further, the learned Departmental Representative submitted, the first appellate authority was not justified in directing the Assessing Officer to allow `
5 M.J. Biopharm Pvt. Ltd.
15.31 lakh as business expenditure, since, such expenditure was not approved by the prescribed authority.
The learned Authorised Representative submitted, assessee’s in– house R & D facility has been duly approved by the prescribed authority and approval granted in Form no.3CM was furnished before the Assessing Officer. He submitted, only because the approval of expenditure in Form no.3CL was not furnished, the Assessing Officer disallowed the deduction claimed under section 35(2AB) of the Act. He submitted, though, the assessee had applied before the DSIR in the prescribed manner for approval of expenditure in Form no.3CL, however, grant of such approval is not in the control of the assessee. He submitted, when the prescribed authority ultimately granted approval in Form no.3CL after completion of the assessment proceedings, the assessee furnished it before learned Commissioner (Appeals). Further, he submitted, there cannot be any violation of rule 46A as learned Commissioner (Appeals) has directed the Assessing Officer to allow deduction under section 35(2AB) of the Act after verifying Form no.3CL. As regards expenditure of ` 15.31 lakh, the learned Authorised Representative submitted, since the genuineness of such expenditure has not been doubted by the Assessing Officer, assessee is eligible to claim it as deduction as business expenditure,
6 M.J. Biopharm Pvt. Ltd. though, deduction claimed under section 35(2AB) of the Act in respect of such expenditure may not be admissible.
We have considered rival submissions and perused the material on record. A reading of the assessment order would clearly reveal that the only reason for which the Assessing Officer has disallowed assessee’s claim of deduction under section 35(2AB) of the Act is, it has not furnished the approval of expenditure by DSIR in Form no.3CL. The Assessing Officer has neither disputed the fact that assessee’s in– house R&D facility is approved by the DSIR nor he has raised any doubt with regard to the genuineness of expenditure incurred of ` 1,12,57,000, in R & D activity. It is evident, before the first appellate authority, the assessee has furnished the approval of DSIR in Form no.3CL. It is also evident, in Form no.3CL DSIR has approved expenditure of ` 97.26 lakh. Thus, the conditions of section 35(2AB) of the Act to that extent stood satisfied. That being the case, we agree with the learned Commissioner (Appeals) that the assessee is eligible to claim deduction under section 35(2AB) of the Act for an amount of ` 1,94,52,000, being 200% of the expenditure approved by the DSIR in Form no.3CL. As regards the contention of the Department that learned Commissioner (Appeals) has allowed assessee’s claim of deduction by accepting fresh evidence in Form no.3CL in violation of rule 46A, we must observe, the aforesaid contention of the Revenue
7 M.J. Biopharm Pvt. Ltd. does not hold much water. A careful reading of the finding of the learned Commissioner (Appeals) makes it clear that, though, taking note of Form no.3CL filed by the assessee he has concluded that the assessee is eligible to claim deduction under section 35(2AB) of the Act in respect of expenditure approved by the DSIR, however, he has made it clear that such deduction is subject to verification of Form no.3CL by the Assessing Officer. Thus, it is apparent, learned Commissioner (Appeals) has given opportunity to the Assessing Officer to verify Form no.3CL before allowing deduction under section 35(2AB) of the Act. It is relevant to observe, in pursuance to the directions of learned Commissioner (Appeals), the Assessing Officer has not only verified the approval granted in Form no.3CL by the DSIR but having found the expenditure claimed by the assessee to be genuine has allowed deduction under section 35(2AB) of the Act for an amount of ` 1,94,50,000, in order dated 11th October 2018. Therefore, in our view, learned Commissioner (Appeals) has not violated the provisions of rule 46A. As regards the contention of the Revenue in respect of R & D expenditure amounting to ` 15.31 lakh, we fully agree with the learned Commissioner (Appeals) that though the assessee may not be eligible to claim deduction under section 35(2AB) of the Act with regard to such expenditure, however, it certainly can claim deduction of such expenditure as business expenditure. This is for the simple reason that 8 M.J. Biopharm Pvt. Ltd. the Assessing Officer has never doubted the genuineness of the expenditure claimed by the assessee. In view of the aforesaid, we uphold the decision of the learned Commissioner (Appeals) on the issue. Grounds raised are dismissed.
In the result, Revenue’s appeal is dismissed. ./2018 Assessee’s Appeal
At the outset, on the instructions of the assessee, the learned Authorised Representative expressed his intention not to press the grounds raised in this appeal. Accordingly, the grounds raised in this appeal are dismissed as not pressed.
In the result, assessee’s appeal is dismissed.
To sum up, both the appeals are dismissed. Order pronounced in the open Court on 12.07.2019