RENU ELECTRONICS PVT. LTD.,PUNE vs. ACIT, CIRCLE 5, PUNE, PUNE

Assessment Year: 2017-18 Renu Electronics Pvt. Ltd., Vs. ACIT, Circle-5, Pune. S.No.2/6, Near Baner Telephone Exchange, Baner, Pune- 411045. PAN : AAACR8741G Appellant Respondent Assessee by : Shri Nikhil S. Pathak Revenue by : Shri Ajay Kumar Keshari Date of hearing : 25.06.2024 Date of pronouncement : 20.09.2024 आदेश / ORDER

PER VINAY BHAMORE, JM:

3] The learned CIT(A) erred in holding that the assessee was in default by not filing the Form No. 3CLA within the due date specified and hence, the learned A.O. was justified in denying the claim of weighted deduction u/s 35(2AB) r.w.r. 6(l)(7A)(c). 4] The learned CIT(A) failed to appreciate that simply because Form No. 3CLA was filed by the assessee beyond due date specified in rule 6(1)(7A)(c) was not a valid reason for denying the claim of weighted deduction u/s 35(2AB) of the Act. 5] The learned CIT(A) erred in not appreciating that the DSIR had duly considered the belated Form No. 3CLA filed by the assessee and had issued Form No. 3CL approving the weighted deduction to the assessee and hence, there was no reason to deny the claim of weighted deduction u/s. 35(2AB) of the Act. 6] The learned CIT(A) erred in not appreciating that filing of Form No. 3CLA before due date specified u/s 139(1) was not a mandatory condition and accordingly, the denial of weighted deduction u/s 35(2AB) was not justified at all. 7] The learned CIT(A) failed to appreciate that the assessee was required to file Form No. 3CLA to DSIR and on that basis Form No. 3CL is to be issued by DSIR and since in the present case, DSIR has duly furnished form No. 3CL approving the claim of weighted deduction, there was no reason to deny the claim of weighted deduction u/s 35(2AB) of the Act. 8] The learned CIT(A) erred in not appreciating that even if there was a delay in filing Form No. 3CLA within the due date specified, there was no express provision that the assessee would not be eligible to claim weighted deduction u/s. 35(2AB) and hence, the disallowance of claim of weighted deduction u/s. 35(2AB) is not justified at all. 9] Without prejudice to the above grounds, the assessee submits that in case, the claim of weighted deduction u/s 35(2AB) is denied, in that event, the revenue expenditure incurred by the assessee ought to have been allowed as a deduction u/s 37(1) of the Act. 10] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal

.”

3. The facts of the case, in brief, are that the assessee is a company registered under the Companies Act, 1956. It is engaged in the business of automation electronics manufacturer and exporter of a large range of operator and communication interfaces. The assessee company has e-filed its return of income on 07.11.2017 declaring loss of Rs.5,08,48,879/-. The case was selected for scrutiny under CASS and the notices u/s 143(2) and 142(1) were issued to the assessee company from time to time. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee company has claimed deduction u/s 35(2AB) of the IT Act amounting to Rs.4,80,76,721/-. It was also noticed that the assessee has debited an amount of Rs.4,45,02,773/- in Profit & Loss Account, therefore, the total amount of deduction as per Profit & Loss Account and computation of income is Rs.9,25,79,494/-. The assessee company has claimed 200% deduction u/s 35(2AB), which was for the in- house research and development. The calculation of the same is tabulated as below :- Description Expenditure Eligible Amount debited (Rs.) deduction (Rs.) to P & L account (Rs.) Expenditure on scientific research u/s 35(2AB) in house research and development – 200% Revenue Expenses 4,45,02,773/- 8,90,05,546/- 4,45,02,773/- Capital Expenditure – Fixed 17,86,974/- 35,73,494/- assets Total 4,62,89,747/- 9,25,79,494/- 4,45,02,776/- Balance amount deducted in - - 4,80,76,721/- Computation of income u/s 35(2AB) 4. The Assessing Officer asked the assessee company to furnish a copy of the approval letter from DSIR for allowability of deduction u/s 35(2AB) of the IT Act. In response, the assessee company submitted DSIR certificate Form 3CL and also the copy of Form No.3CLA, which was filed under Rule 6 of the Income Tax Rules, 1962. It was noticed by the Assessing Officer that the DSIR has certified the amount of Rs.4,33,74,000/- as ‘revenue expenditure’ and Rs.3,00,000/- as ‘capital expenditure’ vide its certificate dated 30.11.2018. However, as mentioned in the table above, the assessee company has claimed Rs.4,45,02,773/- as ‘revenue expenditure’ and Rs.17,86,974/- as ‘capital expenditure’ for research and development. Therefore, it was found by the Assessing Officer that the assessee company has claimed more than the allowable expenditure as allowed by the DSIR certificate dated 30.11.2018 issued by the Ministry of Science and Technology. Therefore, the assessee has suo moto accepted that the amount of claim u/s 35(2AB) may be restricted to the amount allowed as per the DSIR certificate issued to the assessee company. The Assessing Officer, therefore, calculated the disallowance u/s 35(2AB) as under :- “Difference as per the expenditure as claimed by the assessee company and as per the DSIR certificate : Rs.(4,62,89,747 – 4,36,74,0000) = Rs.26,15,747/- 200% of Rs.26,15,747/- = Rs.52,31,494/- Therefore, an amount of Rs.52,31,494/- is being added back to the total income of the assessee company for the A.Y. 2017-18.”

5. It was further found by the Assessing Officer that the Form 3CLA for the claim of deduction u/s 35(2AB) by the assessee company was filed on 23.02.2018. Although, the assessee has filed its return of income 07.11.2017 i.e. within the due date as extended by the CBDT. According to the Assessing Officer, Form 3CLA was required to be filed by the assessee company on or before the due date of furnishing of return of income, whereas, in the instant case, the same was filed on 23.02.2018, which is admittedly filed belatedly and, therefore, the Assessing Officer was of the view that the deduction u/s 35(2AB) could not be allowed. In response to this notice, the assessee company submitted that from this year onwards, the procedure has changed w.e.f. 1st July, 2016, according to which, the assessee company was required to file Form 3CLA electronically with DSIR on or before the due date of furnishing of return of income. But due to ignorance this amended procedure was not known to the assessee company and, therefore, it followed the old procedure and approached the DSIR for verification of their accounts, but the DSIR informed them that the procedure has changed and they are required to file Form 3CLA electronically. As soon as the assessee company came to know about this change, they immediately furnished Form 3CLA electronically before the DSIR and after verifying the Form 3CLA, DSIR authorities conducted their regular audit and issued a final certificate in Form 3CL to the assessee company. It was submitted by the assessee company before the Assessing Officer that ultimately the DSIR has verified the accounts and issued Form 3CL by restricting the expenditure claimed by him and they are agreed to the figure of expenditure as accepted by the DSIR. But, the Assessing Officer not accepted the submissions of the assessee company and disallowed the deduction claimed by the assessee. The assessment order was passed on 27.11.2019 by determining the total income at Rs.4,17,30,620/- against the income returned by the assessee company at loss of Rs.5,08,48,879/-.

6. Being aggrieved with the above assessment order, the assessee preferred first appeal before the ld. CIT(A)/NFAC. After considering the reply of the assessee, the ld. CIT(A)/NFAC vide order dated 29.12.2023 dismissed the appeal by observing as under :- “8.2 ....... On conjoining perusal of the section 35(2AB) of the Act with rule 6(1)(7A)(c) of Income Tax Rules, 1962, it is seen that the assessee should file Form No. 3CLA to the Secretary, Department of Scientific and Industrial Research (DSIR) on or before the due date specified in Explanation 2 to subsection (1) of section 139 of the Act for furnishing of return of income. 8.3 During the course of assessment proceedings, the AO show- caused the appellant regarding allow ability of deduction u/s 35(2AB) of the Act r.w. rule 6(1)(7A)(c). The appellant in compliance to the show-cause notice replied that the process was changed and the same was not known to the appellant. The argument put forth by the appellant was not considered as the appellant was in default in basic mandatory filing the Form No. 3CLA Accordingly, the AO inferred that the appellant had a procedural default and the delay in filing of Form 3CLA had not been proved with sufficient justification though the appellant was given sufficient opportunity and disallowed the deduction u/s 35(2AB) r.w. rule 6(1)(7A)(c) to the tune of Rs.9,25,79,494/- 8.4 Furthermore, the appellant during the course of appellate proceedings submitted that the DSIR authority had delayed the providing of Form 3CL to the Department by over 160 days though the appellant had also failed to file Form No. 3CLA on or before due date of filing of its return of income. The appellant submitted that the amount of deduction permissible as per DSIR certified Form 3CL and recomputed the final disallowance to the tune of Rs.14,86,997/-. In short, the appellant pressed that Form 3CLA is not the basis for the grant of the deduction whereas deduction is permissible only on the basis of certification by DSIR. In order to buttress its arguments, the appellant has placed reliance upon the following decisions/case laws:  CIT vs. G M Knitting Industries (P) Ltd-(2016) 71 taxmann.com 35 (SC)

Vanshree Builders and Developers (P) Ltd vs CIT – (2013) 40 Taxmann.com 75 (Bangalore Trib.)  ACIT vs. Monarch Innovative Technologies (P) Ltd (2018) 91 taxmann.com 267 (Mumbai Trib.)  CIT Vs Lucknow Public Educational Society - (2009) 183 taxmann 62 (Allahabad HC)  DCIT vs. Sankalp International  Pr. CIT Vs. Surya Merchang Ltd- (2016) 72 taxmann.com 16 (Allahabad HC)  CIT Vs. Clans Lifesciences Ltd (2010) 326 ITR 251 (Gujarat)  CIT Vs. Sandan Vikas (India) Ltd- (2011) 335 ITR 117 (Delhi)  Strides Shasun Limited Vs. ACIT- ITA No. 8614/Mum/2011  Cummins India Ltd vs. DCIT Circle 1(1)- ITA No. 309/Pun/2014  Hon'ble High Court of Karnataka in the case of Tejas Networks Ltd vs. DCIT (2015) 233 taxmann 426  Johnson Controls Hitachi Air Conditioning India Ltd Vs DCIT (2020) TIOL 653 ITAT Ahm 8.8 In plethora of cases as cited by the appellant, it is observed that the delayed intimation from the prescribed authority should not serve as a valid reason for disallowing a legitimate deduction under the law. In the case on hand, the appellant was in default for filing Form No. 3CLA on or before due date of filing of its ITR. Thus, the argument of the appellant seems to be unsustainable. 8.6 For what has been outlined above and for the reasons stated above, it is held that on the pertaining facts and circumstances of the case, I have not found any error in the assessment order of the AO with regard to disallowance of deduction u/s 35(2AB) r.w. rule 6(1)(7A)(c). Accordingly, the addition towards disallowance of deduction u/s 35(2AB) r.w. rule 6(1)(7A)(c) to the tune of Rs.9,25,79,494/- is confirmed.

7. It is this order against which the assessee is in appeal before this Tribunal.

Revenue Expenses Incurred 4,45,02,773/- 4,45,02,773/- Capital Expenditure – 17,86,974 35,73,948 R&D Total Deductible 9,25,79,494 9. The Expenses Incurred are part of the Audited Financials for the previous year ended March 31, 2017. The assessee company has claimed the amount of expenditure incurred U/s 35(2AB) accordingly and the Return for the Previous year has been filed on 7th November 2017. The due date for filing of the return for this previous year had been extended to 7th November 2017. The process for communication of the Expenses incurred by the assessee claiming deduction U/s 35(2AB) to DSIR and from DSIR to Income Tax Department was sought to be streamlined by the change in the process effected by mid-year change from 1st July 2016 through Amendment in the Rules requiring first filing of Form 3CLA which was hitherto directly filed with DSIR. Till AY. 2016-17, the R & D centers were required to file the Certificate of the Expenditure Incurred with the DSIR and DSIR approved and communicated the approval of the expenditure to the Directorate General (Income Tax Exemptions). For the previous year ended March 31, 2017 for which the return had been filed before the due U/s 35(2AB) had been made, the assessee company personnel were not aware of this change in the manner of communication and online filing of Form 3CLA and hence the said form had not been filed on or before the due date for filing of the return. The Form was filed on 23rd of February 2018 after the accountant of the company upon visits to DSIR submitting the information and documents for their audit and verification was made aware of the same. The compliance of filing of the Form 3CLA was nonetheless completed before the tax assessment. DSIR has audited and verified the information and details of the Expenditure incurred and has Approved the Expenditure and Granted Form 3CL which is the basis for granting of the deduction based on the fact that DSIR is the Prescribed Authority and the final Approving authority by CBDT for Certifying the Amount of Expenditure that should be allowed by the Assessing Officer to the eligible unit. The Approval was granted on 30th November 2018. Deduction u/s 35(2AB) of the IT Act is based on Form 3CL, the Certification by DSIR and not based on Form 3CLA. Form 3CLA under the Rules is only the manner of communication of the Expenditure to DSIR and nothing else. On the basis of all these facts, it was requested before the Bench to allow the deduction claimed by the assessee u/s 35(2AB) on the basis of Form 3CL certificate issued by DSIR.

are allowed.

8. In the result, appeal is allowed.”

13. Further, we find support from another judgement passed by the Hon’ble Delhi High Court in the case of Nagarvision India Pvt. Ltd. vs. Secretary, DSIR reported in (2024) 159 taxmann.com 558 (Delhi) order dated 13.02.20204, wherein, the Hon’ble High Court held that “Section 35 is a beneficial provision placed in the Act and which provides for weighted deductions being claimed in respect of expenditure that that may be incurred by an assessee in connection with scientific research. It is with the avowed objective of giving an impetus to scientific research and the creation of a robust Research and Development infrastructure that section 35(2AB) accords deductions on expenditure incurred in connection with scientific research and the creation of in-house R & D facilities.”

14. In the above case, the Hon’ble Delhi High Court was pleased to allow the claim of the assessee u/s 35(2AB) of the IT Act for assessment year 2019-20.

15. Further, we rely on the judgement of the Hon’ble Gujarat High Court in the case of PCIT vs. Schaeffler India Ltd., 155 taxmannc.om 651 (Gujarat), wherein, the Hon’ble High Court Department by upholding the Tribunal’s view by observing as under :- “6. In view of above it is not in dispute that the assessee at the time of original assessment has filed a copy of recognition of in-house R&D facility dated 25-8-2014. The assessee also filed the approval of in-house R&D facility dated 7-10-2015 in Form 3CM during the course of assessment with regard to the computation of deduction under section 35(2AB) of the Act. The assessee also filed certificate of the auditor certifying the expenditure during the course of assessment proceedings. With regard to Form 3CL, the same was issued by the prescribed authority on 20-7-2021 which was after passing of the assessment order under section 143(3) of the Act, and therefore, the assessee could not produce the same on or before the assessment order. Further, Form 3CL was duly filed by the assessee during the course of assessment vide letter dated 9-10-2019. Therefore, since the assessee has filed Form 3CL certifying his Research and Development (R&D) facility approved by the prescribed authority in proper format, merely because the authority failed to send the intimation during the course of assessment proceedings could not be the reason for denying the claim deduction under section 35(2AB) of the Act. The ITAT in our opinion is correct in holding that the order of the A.O. is not erroneous and prejudicial to the interest of revenue.