DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), PUNE, PUNE vs. CTR MANUFACTURING INDUSTRIES PRIVATE LIMITED , PUNE

आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: These are two appeals ITA No.998/PUN/2023 filed by the Revenue and cross objection C.O. No.4/PUN/2024 filedby the Assessee are directed against the order ofld.Commissioner of Income Tax(Appeal)[NFAC] u/s.250 of the Act, dated 17.07.2023 emanating from the assessment order of under section 143(3) of the Act, for A.Y.2014-15dated02.12.2016. Also, the assessee is before us as a Cross-Objector for theaforementioned year. The Revenue in ITA No.998/PUN/2023 has raised the following grounds of appeal : “1. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the AO u/s 14A of the Act, without giving any factual real for the same and placing reliance on a judicial pronouncement with different facts? 2. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction u/s 35(1 )(ii) of the Act in respect of donations given by the assessee on the ground that cancellation of donee’s registration under the Act took place after the donation was given without appreciating that there were clear evidences about the said donations being bogus in nature? 3. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction u/s 35(2AB) of the Act in respect of amount for which approval was not granted by the DSIR for Capital & Revenue Expenditure? 4. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction u/s 35(2AB) of the Act in respect of amount of Capital Expenditure in respect of

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 Prototypes that was suo-moto withdrawn by the assessee in revised return of income?” 2. The Assessee in Cross Objection No.4/PUN/2024 raised the following grounds:

“A. On the facts and in the circumstances of the case and in law, the learned AO has erred in objecting the order of Ld. CIT(A): General: 1. without appreciating that the Ld. CIT(A) has rightly deleted the additions/ disallowances of Rs.3,35,41,465/-, made to income as per revised computation submitted during assessment proceedings; Disallowance of Rs. 2,48,780 under section 14A of the Act 2. ought to have appreciated that the suo-moto disallowance of Rs. 15,000 as made by the Respondent under section 14A of the Act in the return of income is adequate and nothing further could be attributed for the same and which has been rightly deleted by Ld.CIT(A). Disallowance of deduction of Rs. 52,50,000 claimed under section 35(1)(ii) of the Act 3. failed to appreciate that the Respondent has made donation to School of Human Genetics and Population Health (‘SHG & PH’), which was an approved research association eligible for receipt of contribution under section 35(1 )(ii) of the Act on the date of donation and any subsequent withdrawal of recognition shall not affect Respondent’s claim and therefore the Ld.CIT(A) has rightfully deleted the disallowance. Denial of claim of Rs 2,80,42,685 pertaining to weighted deduction claimed under section35(2AB) of the Act on expenditure incurred in Research & Development (‘R&D’) facility 4. ought to have appreciated that the Ld. CIT(A) has rightfully allowed the claim of weighted deduction under section 35(2AB) of the Act relying on Hon’bie Jurisdictional Pune Tribunal in case of Cummins India Pvt Ltd vs DCIT (ITA No 309/Pun/2014 dated 15 May 2018) wherein it is held that the Assessing officer cannot

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 curtail the expenditure and the consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in Form 3CL. Non-grant of TDS/TCS credit of Rs. 32,567 5. ought to have appreciated the directions given by learned CIT(A) and ought to have passed appeal effect order granting the TDS/TCS credit of Rs 32,567 B. On the facts and in the circumstances of the case, the learned CIT(A) AO: Disallowance of Rs. 2,48,780 under section 14A of the Act 6. failed to appreciate that recording of satisfaction is a must before invoking the provisions of section 14A r.w. Rule 8D of the Rule so as to make disallowance which has been held in Respondent’s own case for different assessment year 7. ought to have appreciated that no disallowance can be made, when the Appellant has not incurred any expenditure to earn such exempt income 8. ought to have appreciated the fact pattern of investment and corresponding receipt of income and how disallowance made by the learned AO was unjustified in the facts of the case. 9. ought to have held that the learned AO has made the disallowance in a mechanical manner Disallowance of deduction of Rs. 52,50,000 claimed under section 35(1 )(ii) of the Act 10. ought to have appreciated that the learned AO cannot make addition simply on the basis of information received from any authority and the learned AO ought to have conducted an independent inquiry before passing the assessment order 11. ought to have held that the allegations made by the learned AO are without any cogent material on record and therefore the learned AO’s action is only speculative 12. failed to adjudicate on applicability of amendment in section 35(1 )(ii) by Taxation Laws (Amendment) Act, 2006 to the impugned disallowance.

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 Denial of claim of Rs 2,80,42,685 pertaining to weighted deduction claimed under section35(2AB) of the Act on expenditure incurred in Research & Development (‘R&D’) facility Without prejudice to the above, the learned CIT(A): General 13. failed to appreciate that expenditure (both capital and revenue expenditure) was inextricably related to ‘scientific research’ as defined in section 43(4) of the Act and thus eligible for claim of weighted deduction under section 35(2AB) of the Act. In relation to capital expenditure of Rs 1,48,51,921 on prototypes, dies &moulds and furniture 14. ought to have appreciated that the entire capital expenditure in relation to prototypes, dies &moulds, and furniture was incurred inside the R&D Unit and accordingly, eligible for weighted deduction under section 35(2AB) of the Act. In relation to revenue expenditure of Rs 9,10,000 pertaining to professional fees 15. failed to appreciate that the DSIR Guidelines (i.e., May 2010) applicable for AY 2014-15, were silent as regards the expenditure related to consultancy, retainership, contract manpower/ labour expenses, and accordingly, the Respondent shall be in any way allowed weighted deduction on professional fees incurred. Erroneous levy of interest of Rs. 3,52,526 under section 234C of the Act 16. failed to appreciate that interest under section 234C can be levied only on returned income and not on assessed income. Accordingly, excess interest of Rs.3,52,526 charged under section 234C of the Act is to be deleted.” Brief facts of the case : 3. In this case, assessee had filed Return of Income u/s.139(1) of the Act on 30.09.2014 for A.Y.2014-15 declaring total income of Rs.1,87,17,250/-. Subsequently, assessee has also filed revised

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 return of income on 16.09.2015 declaring total income of Rs.3,41,87,210/-. As per the assessment order, the case was selected for complete scrutiny and notice u/s.143(2) of the Act was served on 31.08.2015.

4.1 During the assessment proceedings AO observed that assessee had claimed payment of donation of Rs.30,00,000/- to the School of Human Genetics and Population Health, Calcutta. Assessee had claimed weighted deduction u/s.35(1)(ii) of the Act of Rs.52,50,000/- for the said claim of donation.

4.2 AO has also partlydisallowed assessee’s claim of weighted deduction u/s.35(2AB) of the Act. AO restricted the disallowance of expenditure to the amounts specified in the report issued by DSIR.

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 the assessee. Aggrieved by the order the Ld.CIT(A) the revenue has filed appeal and Assessee filed cross objections.

Submission of ld.AR : 6. The relevant part of the Ld.AuthorisedRepresentative(ld.AR) of the assessee’s (Ld.AR) written submission is reproduced here as under : “2.2 The reduction in the total income as per revised computation filedduring assessment proceedings on 21 October 2016 vis-a-vis the income reported in revised return of income filed on 16 September 2015 is mainly on account of the following reasons: a. Reinstatement of claim of weighted deduction under section 35(2AB) of the Act with respect to capital expenditure incurred on prototypes amounting to Rs. 1,80,49,310 (i.e., 200% of Rs.90,24,655) which was withdrawn in revised return of income. b. Reduction in consequential depreciation of Rs 15,79,316 on the above revision in claim of weighted deduction on capital expenditure; and c. Suo-moto reduced the claim of weighted deduction under section 35(2AB) of the Act on revenue expenditure (pertaining to interest cost and depreciation) incurred during the year amounting to Rs 66,46,344 (restricted to only weighted portion). 2.3 The Respondent submits that additional claims can be made by way of filing letter and not only with revised return. In this regard, the Respondent places reliance on the following decisions - • CIT Mumbai v. Pruthvi Brokers & Shareholders [2012] 349 ITR 336 (Bombay) (copy enclosed herewith at page no. 608 to 619) • Chicago Pneumatic India Ltd. v. DCIT [2007] 15 SOT 252 (MUM.) (copy enclosed herewith at page no. 620 to 634) Note 1: The Respondent vide revised return filed on 16 September 2015 reduced its weighted deduction claim under section 35(2AB) by

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 Rs.1,80,49,310 on prototypes and claimed depreciation of Rs.15,79,315 on the same. Further, the Respondent, vide submission dated 21 October 2016, reinstated the claim forgone earlier. However, while passing assessment order under section 143(3), the learned AO had taken income as per revised return as against income as per revised computation submitted on 21 October 2016 as the starting point for assessing total income. In a nutshell, the aforesaid stand of learned AO has resulted into disallowance of Rs 1,64,69,995 (Rs 1,80,49,310 less depreciation of Rs 15,79,315) 4.6 SHG & PH is non-governmental and non-profit entity registered under the West Bengal Societies Registration Act, 1961 with Registrar, West Bengal, Societies, Kolkata vide Registration No.S/73334 of 1993-94 dated 26 April 1993. 4.7 SHG & PH is also registered as a trust as per section 12A of the Act. SHG & PH is approved as a scientific research association/institution under section 35(1)(ii) of the Act. 4.8 SHG & PH is a recognized scientific research and industrial research organization by the Department of Scientific and Industrial Research under the scheme on Recognition of Scientific and Industrial Research Organizations (SIROs) -1998. 4.9 All the above facts can be seen from the Annual report of SHG & PH in the section 'Legal Status of the organization' enclosed at page no.218 to 249 of the paperbook. 4.10 A survey under section 133A of the Act was conducted at the premises of SHG Sc PH in Kolkata on 27 February 2015. The main allegation and reason for the survey against SHG & PH was that it had received a huge number of 'donations' on which it earned service charges and subsequently the said donations received was refunded back to the donors in cash. The DDIT(Inv), Kolkata has compiled a DGIT wise list of possible donors who have received back the donations in cash from the impounded documents from the premises of SHG & PH. 4.11 Meanwhile, SHG & PH had made an application dated 16 March 2014 to Settlement Commission (pre-survey), Kolkata for the assessment years 2012-13, 2013-14 and 2014-15 and offered the service charges received from donations as income. The application was accepted by the Settlement Commission vide order dated 25 March 2015 (wherein the Settlement Commission has passed the order after considering the findings of the survey conducted at the premises of SHG & PH).

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 4.12 In the said order, the Settlement Commission had accepted the commission income offered by SHG & PH and has not cancelled/revoked any registration granted to the SHG & PH. The relevant extract of the settlement commission order is reproduced below: "11. We have considered the above facts carefully. The facts of this case are rather peculiar in as much as the above entity is a registered society as noted in para 2 above. Registration under section 12A has been granted by the DI (Exemption) on 27.10.2004. Registration u/s 80G was initially granted on 27.10.2004 was therefore also available to it since 12.10.2011 till withdrawn. Similarly, registration under section 10(23C) had been granted on 27.2.2004, which had been renewed on 16.1.2014. A gazette notification No.4/2010 dated 28.1.2010 had also been issued by the CBDT in the Ministry of Finance under section 35(1)(ii) of the Act. We have noted that though the objects of the applicant society are indeed laudable and enjoyed exemption from taxation, it has misused 4.38 The learned AO has claimed that he has received a letter from the Hon'ble Principal Chief Commissioner of Income Tax, Pune ('Hon'ble PCIT') stating that the said transaction is bogus in nature and that the Investigation Wing in Kolkata has conducted necessary inquiries and has identified the beneficiary as one of the entities which provided accommodation entry to various parties across the country including the Respondent. 5.1 The Department of Scientific and Industrial Research ('DSIR') authorities recognized the in-house R&D unit of CTR Manufacturing vide letter dated 4th March 2013 and thereafter the DSIR authorities passed an order of approval, wherein it had approved the Research and Development ('R&D') unit of CTR Manufacturing located at Ambad, Nasik for claim of weighted deduction under section 35(2AB) of the Act vide letter No TU/IV-15(1033)/2013 dated 11 November 2013(copy enclosed herewith at page no._) 5.2 During AY 2014 -15, the company had incurred certain revenue of Rs.1,59,57,263 and capital expenditure of Rs. 5,67,68,333 for undertaking in-house research and development at its aforesaid R&D unit. The tabulated below is the summary of the same – Sr. Amount Particulars No. (Rs in lacs) A Capital Expenditure 1 Prototypes 90,24,655

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 2 Dies and Moulds 56,03,822 3 Furniture 2,23,444 4 Other Plant and Machinery 4,19,16,412 Total (A) 5,67,68,333 B Revenue Expenditure 1 Interest and Depreciation 66,46,344 2 Professional fees paid to third party 9,10,000 3 Other expenses 94,00,919 Total (B) 1,69,57,263 Total (A + B) 7,37,25,596 5.3 In relation to such R&D expenditure, the Respondent claimed weighted deduction under section 35(2AB) of the Act in the original return of income filed on 30 September 2014 for AY 2014-15 as under: 200% Weighted Particulars Amount (Rs) Deduction (Rs) Revenue Expenditure 1,69,57,263 3,39,14,526 Capital Expenditure 5,67,68,333 11,35,36,666 Total 7,37,25,596 14,74,51,192 On capital expenditure 5.4 The team of DSIR visited the premises of R&D unit situated at Nasik on 23 April 2015. During their visit, the authorities informed the company that the capital expenditure of Rs. 90,24,655 incurred on prototypes will not be eligible for claim of weighted deduction under section 35(2AB) of the Act. 5.5 Out of abundant caution and in view of prospective litigation, the Respondent avoided to claim weighted deduction under section 35(2AB) of the Act on cost of prototypes. Accordingly, return of income was revised on 16 September 2015, wherein claim of weighted deduction of the cost of prototypes was withdrawn. Copy of the revised return of income is enclosed at page no. from 128 to 185. 5.6 On 6 October 2015, the DSIR authorities issued Form 3CL in case of the Respondent wherein the capital expenditure of Rs. 418.17 lacs and revenue expenditure of Rs. 94 Lacs has been approved as eligible expenditure for claim of weighted deduction under section 35(2AB) of the Act. Copy of Form 3CL is enclosed at page no from 635 to 636. 5.7 On perusal of Form 3CL, it appears that out of the total capital

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 expenditure of Rs.5,67,68,333 incurred towards in-house R&D, the DSIR authorities has not considered following assets eligible for weighted deduction without giving any justification: Prototypes - Rs.90,24,655 Dies &Moulds - Rs.56,03,822 Furniture - Rs.2,23,444 Subtotal - Rs.1,48,51,921 5.8 However, during assessment proceedings, the Respondent revised the claim of weighted deduction under section 35 (2AB) of the Act vide letter dated 21 October 2016, wherein it reinstated its claim of weighted deduction on the expenditure incurred on prototypes of Rs. 90,24,655 and revenue expenses of Rs.9,10,000 (refer para 5.10) and filed detailed submissions as to why the total amount of capital expenditure (including the expenditure not approved by the DSIR authorities) incurred in the approved R&D facility should be eligible for claim of weighted deduction under section 35(2AB) of the Act based on various Tribunal decisions. Copy of the said submission is enclosed at page no. from 186 to 197 of the paper book.

5.9 The learned AO without appreciating the submission of the Respondent and relying on the fact that the amount of expenditure stated in para 5.7 has not been approved by the DSIR Authorities denied the weighted deduction under section 35(2AB) of the Act. Therefore, in nutshell, the learned AO has disregarded the revised computation submitted during assessment proceedings and made the addition. On Revenue Expenditure 5.10 During assessment proceedings, the Respondent also revised the claim of weighted deduction under section 35(2AB) of the Act on the revenue expenditure. The Respondent noticed that it had inadvertently claimed weighted deduction on cost of interest and depreciation aggregating to Rs 66,46,344. Therefore, it has revised its claim of weighted deduction to reduce the claim of weighted deduction under section 35(2AB) of the Act to the extent of Rs. 66,46,344. Pursuant to therevision, the revised expenditure eligible for claim of weighted deduction under section 35(2AB) of the Act was Rs. 1,03,10,919 (Professional fees of Rs.9,10,000 and other revenue expenditure of Rs 94,00,919). 5.11 With respect to the expenditure not approved by the DSIR Authorities towards professional fee paid of Rs. 9,10,000, the Respondent vide its letter dated 21 October 2016, submitted detailed

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 reasons as to why the aforesaid expenditure should be considered as eligible for claim of weighted deduction under section 35(2AB) of the Act. However, the learned AO, without appreciating the submission of the Respondent and relying on the fact that the said expenditure has not been approved by the DSIR Authorities, has disallowed the weighted deduction of Rs.9,10,000 under section 35(2AB) of the Act.” Submission of ld.DR : 7. The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer(AO).

Findings &Analysis : 8. We have heard both the parties and perused the record.We will decide the appeal as well as cross objection issue wise hereonwards.

Disallowance u/s14A : 8.1 The assessee has earned Dividend Income of Rs.3,65,170/- and claimed it as Exempt Income. It is observed that the Assessee has made following investment on which Assessee has earned Dividend. Nature of Investments Vale of Value of Investment as on investment as 31/03/2014 on 31/03/2013 Equity of subsidiary 162.28 lacs 162.28 lacs Preference shares of subsidiary 365.17 lacs 365.17 lacs

Shares of Saraswat bank 0.10 lacs 0.10 lacs

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 Govt securities 0.01 lacs 0.01 lacs Total 527.56 lacs 527.56 lacs

8.2 The Ld.AR for the assessee pleaded that the investment in subsidiary was made long back and there is no change in the investment. The Ld.AR submitted that since there is no change in the investments, the assessee does not have to monitor the investments, hence practically there is no expenditure.

8.3 On perusal of the Balance Sheet, it is observed that the investments of the assessee are mainly in the subsidiary. The Assessing Officer(AO) has not discussed why he is not satisfied with the suo-moto expenditure disallowance made by the assessee u/s.14A of the Act. The AO has merely brushed aside the submission of the assessee in one line.Once the assessee has made suo-moto disallowance u/s.14A of the Act, the AO has to record satisfaction if he was not satisfied with the disallowance. In this case, the AO has merely brushed aside the submission of the assessee in one line. No proper satisfaction has been recorded by the AO.

8.4 The Hon’ble Supreme Court in Maxopp Investment Ltd. v/s CIT 402 ITR 640 (SC) has held as under :

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 “41. Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment.”

8.5 The Hon’ble Jurisdictional High court in Commissioner of Income Tax v. Sociedade De Fomento Industrial (P.) Ltd.[2021] 123 taxmann.com 38 (Bombay) has held as under : “ 19. Here, on facts, the Tribunal noted that the AO only discussed the provisions of section 14A(l) but has not justified how the expenditure the Assessee incurred during the relevant year related to the income not forming part of its total income. The AO, according to the Tribunal, straightaway applied Rule 8D. Indeed, there must be a proximate relationship between the expenditure and the tax-exempt income. Only then would a disallowance have to be effected. This Court, we may note, on more than one occasion, has held that the onus is on the Revenue to establish that there is a proximate relationship between the expenditure and the exempt income. That is, the application of section l4A and rule 8D is not automatic in each and every case, where there is income not forming part of the total income. No doubt, the expenditure under section 14A includes both direct and indirect expenditure, but that expenditure must have a proximate relationship with the exempted income. Surmise or conjecture is no answer.

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 finding with reference to the Assessee's accounts as to how the other expenditure claimed by the Assessee out of the non-exempt income is related to the exempt income.

8.6 When we apply the observations of the Hon’ble Jurisdictional High Court to the present case, it is observed that the assessee has made major investment in Subsidiary that too in earlier years. Other investments of the assessee are also made in earlier years. The assessee has Suo-moto disallowed Rs.15,000/-. However, nowhere in the assessment order, the AO has tried to analyze why and how the Suo-moto expenditure is not appropriate. The AO has merely made general observation. The Hon’ble Bombay High Court has observed that in such cases the onus is on Revenue. In the present case, the AO has failed to prove that the Suo-moto disallowance is not appropriate. Therefore, on the facts and circumstances of the case, we agree with the Ld.CIT(A) that the disallowance made by the AO u/s.14A read with Rule 8D is not sustainable. 8.7 Accordingly, the Ground Number 1 of the Revenue is dismissed. The assessee’s Ground Number 2& 6 of Cross objection

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 are allowed inabove terms. The Ground number 7&8 of Cross objection becomes academic in nature and needs no adjudication.

Donation made to The School of Human Genetics and Population Health Kolkata :

9.1 In the case of the The School of Human Genetics and Population Health Kolkata, the Income Tax Investigation wing had carried out detailed investigation and unearthed the racket of Bogus Donations.

9.2 The ITAT “B”Bench Kolkata in the case of TarasafeInternationalPrivate Ltd vs DCIT and others (ITA 261/KOL/2020) in common order dated 07/03/2023 has discussed the issue of impugned bogus donations to The School of Human Genetics and Population Health Kolkata at length. The ITAT has discussed at length all the case laws relied by the assessees. Many

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 of the samecase laws were also relied by the present assessee during the hearing before us. The relevant part of the judgement of ITAT Kolkata (supra) is reproduced here as under : Quote , “39. We are aware of the facts that a large number of orders have been passed in favour of the assessee by ITATand some of those were upheld by Hon'ble High Courts also. We have extracted one of the orders fromHon'ble Gujarat High Court. The Hon'ble Supreme Court in the case of Batanagar Education &ResearchTrust (supra), whose copy has been placed on the record by the ld. CIT(DR), has considered the identicalmaterial, which has been placed before us also. In the case of Batanagar Education & Research Trust (supra),the facts are that during the course of survey at the premises of SHG&PH, and in post-survey inquirystatement of Shri Ramendra Lahiri, Managing Trustee of the assessee, i.e. Batanagar Society was recorded.The Secretary, Smt. Samadrita Mukherjee Sardar and Treasurer Smt. Moumita Raghavan of SHG&PH havecategorically deposed in their statements that source of income of SHG&PH was the money received in theform of donations from Corporate Bodies as well as from individuals. The assessee Batanagar Society wasselected by the brokers, who have arranged the donations to SHG&PH as a conduit for receiving thedonations from SHG&PH. This donation was to be returned back to those Corporate Houses and individualsin cash after layering the transaction and the Batanagar Education & Research Trust would also retaincommission income for such an activity. On the basis of that, its registration was cancelled by the ld.Commissioner (Exemption) by exercising the powers under section 12AA(3). This order was upheld by theITAT. However, on further appeal, Hon'ble High Court has reversed this order but Hon'ble Supreme Courtrestored this order, in other words upheld the cancellation of the registration to Batanagar Education &Research

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 Trust. In this judgment, Hon'ble Supreme Court has made reference to the outcome of the survey atSHG&PH coupled with the post-survey enquiry conducted upon Batanagar Society and satisfied that it was anorganized fraud to misuse the status of a charitable entity. This judgment has been pronounced on 2-8-2021.After this judgment, a judgment of the Hon'ble Calcutta High Court in the case of Maco Corpn. India (P.) Ltd.(supra), has been passed, which has been relied upon by the ld. Counsel, but in this decision, Hon'ble HighCourt has not considered the judgment of the Hon'ble Supreme Court, because the judgment of the Hon'bleSupreme Court in the case of BatanagarEducation& Research Trust (supra), was not cited by both the parties………………

Therefore, we do not find any material in the first-fold of arguments raised by the ld. Counsels for the assessees. The appellants are not entitled for deduction under section 35(1)(ii) of the Income-tax Act.” Unquote.

9.3 Thus, the ITAT Kolkata after discussing all the relevant facts, case laws held that it was a fraudulent activity. Thus, the ITAT Kolkata (supra) categorically held that the so called donations were not genuine but fraudulent activity.

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 9.4 The facts are same in the present case, hence the decision of ITAT Kolkata(supra) is squarely applicable to the case of the assessee. The payments claimed to be made by the assessee through RTGS, copy of annual report etc. is nothing but a trail of evidence to cover up the fraud. The report of the employee of the assessee(RM-CRCE) which is at page 202 of the paper book, regarding so-called visit to the office of The School of Human Genetics and Population Health Kolkata is nothing but an evidenceconsciously created.Ironically in the report the employee of the assessee has not mentioned whom he has met, what was the discussion etc. No names mentioned in the so-called report. In the impugned report, name of the person who gave the report is also not mentioned. Therefore, respectfully following the Co-ordinate Bench decision of ITAT Kolkata(supra), we hold that the Assessee is not eligible for the deduction u/s.35(1) of the Act on the impugned donations to The School of Human Genetics and Population Health Kolkata.Accordingly, Ground Number 2 raised by the Revenue is allowed.Accordingly, for the elaborate reasons discussed above, the Assessee’s Ground Number3,9,10,11&12 raised in C.O. No.4/PUN/2024 are dismissed.

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 Deduction u/s.35(2AB) of the Act : 10. There are two components of Deduction u/s.35(2AB) in the case of the assessee. They are discussed as under : 10.1 As per submission of the assessee before the AO, ld.CIT(A) and ITAT, the assessee submitted that in the Original Return of Income filed on 30.09.2014, the assessee claimed 200% weighted deduction u/s.35(2AB) of the Act as under :

Particulars Amount 200% Weighted Deduction Revenue Expenditure 1,69,57,263 3,39,14,526 Capital Expenditure 5,67,68,333 11,35,36,666 Total 7,37,25,596 14,74,51,192

10.2 On 28th October, 2014 the assessee-company filed details of annual expenditure in Annexure-IV with the (DSIR) Department of Scientific & Industrial Research. In Annexure-IV, the assessee made claim for Weighted Deduction on revenue expenditure amounting to Rs.1,03,10,919/- as against the claim of Rs.1,69,57,263/- made in the Return of Income. The assessee had claimed capital expenditure amounting to Rs.5,67,68,333/- which included following items also :

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 Prototypes - Rs.90,24,655/- Dies &Moulds - Rs.56,03,822/- Furniture - Rs.2,23,444/-

10.3 The DSIR Authorities visited assessee’s unit on

23.04.2015. They were of the opinion that Prototypes, Dies

&Mould, Furniture were not eligible for Weighted Deduction

u/s.35(2AB) of the Act. Accordingly, assessee revised the

Return of Income on 16.09.2015 and excluded the cost of

Prototypes. However, subsequently during the assessment

proceedings vide a letter assessee claimed Weighted

Deduction u/s.35(2AB) for Prototypes, Dies &Mould

andFurniture. During the Appellate proceedings before this

tribunal, the assessee filed a paper book, page 191 of the

Paper Book contains a table which explains all these facts.

The said Table submitted by the assessee is reproduced here

under :

CTR MANUFACTURING INDUSTRIES LTD ASSESSMENT YEAR 2014-15 Annexure 1

Sr. Particulars (Amount in Lacs) No Original Claim Revise Appro Revise Return ed in d ved by d claim filed on Annex Retur DSIR before 30.09.201 ure IV n filed in AO on 4 filed on Form 21.10.2 with 16.09. 3CL 016 DSIR 2015

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15

on 30.10. 2014

A Capital Expenditure 1 Prototypes 90.25 90.25 - - 90.25 2 Dies and Moulds 56.03 56.03 56.03 - 56.03 3 Furniture 2.23 2.23 2.23 - 2.23 4 Other Plant and Machinery 419.18 419.18 419.18 419.18 419.18 Total (A) 567.69 567.69 567.69 567.69 567.69

B Revenue Expenditure 1 Interest and Depreciation 66.47 - 66.47 - - 2 Professional fees paid to the third 9.00 9.00 9.00 - 9.00 parties 3 Other expenses 94.10 94.10 94.10 94.10 94.10 Total (B) 169.57 103.10 169.57 94.10 103.10

Total (A + b) 737.26 670.79 647.01 513.28 670.79

Thus, it can be observed that the assessee made incorrect

claim in the Return of Income as compared to the claim made

in Annexture-IV filed before DSIR, which is the Prescribed

Authority. The AO restricted the claim to the amount which

were approved by the DSIR. The ld.CIT(A) allowed appeal

of the assessee.

per Section 35(2AB) of the Act, the Prescribed Authority has

to approve only the facility and the quantum of expenditure is

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 outside the scope of the prescribed authority. The assessee relied on certain case laws for the same. 11.1 However, we do not agree with the proposition put- forth by the assessee. Before we discuss the issue further, we are reproducing the Section 35(2AB) of the Income tax Act and relevant Income tax Rule 6 as applicable for AY 2014-15 as under : 35(2AB) (1) Where a company 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) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of [a sum equal to [two] times of the expenditure] so incurred.

Prescribed authority for expenditure on scientific research Rule 6 (1)………. (3)…….. (4)…… (5)…… 5(A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing inf Form No.3CM. (6)……… (7)……….

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 (7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely :- (a) The facility should not relate purely to market search, sales promotion, quality, control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No.3CL to the Director General(Income-tax Exemptions) within sixty days of its granting approval; (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall be furnished to the Secretary, Department of Scientific and Industrial Research by 31st day of October of each succeeding year. (Explanation: …………….) (d) Assets acquired in respect of development of scientific research and development facility shall not be disposed of without the approval of the Secretary, Department of Scientific and Industrial Research.]

The combined reading of Section 35(2AB) and Rule 6, explains that the Prescribed Authority shall pass an order if prescribed authority is satisfied that the conditions provided in this Rule and Section 35(2AB) are fulfilled. Thus, the prescribed authority has to satisfy himself about the fact that conditions of the section 35(2AB) and Rule 6 are fulfilled. Section 35(2AB) talks about the “expenditure incurred on

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 scientific research”, the sub-Rule 7A of Rule 6 talks about the “expenditure incurred on inhouse research and development facility”, thus, combined reading explains that the section and Rule talks about “expenditure incurred on in- house research and development facility”. Thus, the thrust is on “expenditure incurred on inhouse research and development facility”. Now, the question is which authority will verify the “expenditure incurred on inhouse research and development facility”! Obviously, the Prescribed Authority is the expert in the field of scientific research, so they are more competent to verify whether a particular expenditure has been incurred on Scientific Research on in house research and development facility. Therefore, when the prescribed authority in its report submitted to Director General of Income Tax identifies quantum of expenditure incurred on scientific research on inhouse research and development facility, the quantum of expenditure has to be considered as more authentic as compared to any claim made by the assessee. Therefore, in this case the AO’s reliance on the report submitted by the Prescribed Authority and allowing

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 the quantum of expenditure identified by the prescribed authority is most appropriate in the facts of this case.

11.4 We are aware of the decision of the ITAT Pune in the case of Cummins India Ltd 96 Taxmann.com576 relied by the assessee. In the case of the Cummins India Ltd, the ITAT held that the AO has to look into the expenditure once the facility has been approved by the Prescribed Authority. In these facts and proposition of law as laid down by ITAT Pune in the case of Cummins India Ltd (supra), one thing is clear that Assessing Officer has to verify the Expenditure claimed. Thus, once the assessee claims certain expenditure eligible u/s.35(2AB) of the Act, and if the Research facility has received Approval of the Prescribed Authority, then it is the Assessing officer’s job to verify the expenditure. In the case under consideration, the AO has verified the expenditure and the AO in his wisdom thought to rely on the “quantum of expenditure” identified by the prescribed authority as incurred for Scientific Research. We have already mentioned that the prescribed authority is an expert in the field, so they have more knowledge to identify the expenditure.In these

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 facts, we do not think that AO has erred in relying on the “quantum of expenditure incurred on inhouse research and development facility” identified by the prescribed authority in its report. Another fact is that in this case the Assessee kept on changing the ‘quantum of expenditure claimed’ in the Return of Income. There is difference in the figures claimed in “FORM IV” filed before the Prescribed authority and the figures claimed in the return of income and then subsequently in the letter filed during assessment proceedings. Ironically, the assessee has not filed a single document to prove the genuineness of the so-called expenditure claimed to be eligible for deduction u/s 35(2AB) of the Act and had not explained the difference in the figures claimed.The expenditure on “Prototypes” was initially claimed by the assessee in the original return but then they withdrew the claim in the Revised Return as the Prescribed Authority was of the opinion that the expenditure incurred on so called prototypes is not expenditure for scientific research and development. Then, the assessee by a simple letter filed during assessment proceedings claimed it again as eligible. The assessee has not explained how the expenditure is

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 eligible!. We have perused the submission made by the assessee during the assessment proceedings, which is part of the paper book filed by the assessee and nowhere the assessee has explained how the expenditure is eligible, no evidence filed by the assessee of the so called expenditureclaimed tobe eligible for deductin u/s 35(2AB). The assessee has merely relied on case laws. The onus is on the Assessee to prove whenever assessee claims benefit of certain weighted deductions. Section 35(2AB) of the act grants weighted deduction to the assessee, therefore, as held by the Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai v.Dilip Kumar &Company 69 GST 239 (SC)the onus is on the assessee. Also, these provisions are to be interpreted strictly. 11.5 As per section 35(3), if any question arises under this section whether any activity constitutes or any asset being used for Scientific Research, then, it shall be referred to Prescribed Authority and decision of Prescribed Authority shall be final. Thus, section 35(3) clearly specifies, in case of disputes whether any activity is carried out in scientific research or not and if any asset was used for scientific

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 research or not! Then, the Authority to decide these disputes is Prescribed Authority. Therefore, it means the Prescribed Authority is the final authority. It obviously means, the Prescribed Authority is the final authority to judge whether any expenditure was incurred for Scientific Research or not! Subsequently, the legislature has amended the section 35(2AB) by Finance Act, 2016 by amending sub-rule 7A of Rule 6 of Income Tax Rules which authorized the Prescribed Authority to quantify the expenditure incurred on inhouse research and development facility in its report. We do not intend to say that the amendment is retrospective, but the spirit of the amendment explains that prescribed authority is the only authority who is most suitable to quantify the expenditure incurred on inhouse research and development facility by the assessee which is eligible for weighted deduction u/s.35(2AB) of the Act. In the present case under consideration, the AO has relied on the quantification of the expenditure done by the Prescribed Authority in its report.

11.6 Therefore, in the facts and circumstances of the case, we uphold the disallowance made by the AO in the

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 assessment order of the claim of weighted deduction u/s.35(2AB) of the Act on the Capital Expenditure of Rs.1,48,51,921/-(para 7.2 of the assessment order), weighted deduction claim of Rs.66,46,344/- (para 7.4.1 of assessment order), weighted deduction on Revenue expenditure of Rs.9,10,000/-. In the assessment order, the AO has allowed Depreciation on the Capital Expenditure.

11.6.1 However, regarding Revenue Expenditure, the AO has not verified whether the impugned amounts were eligible as “business expenditure” under section 37 of the Act. Hence, we set aside the issue for limited purpose to the AO for verification whether the amounts qualify as business expenditure u/s.37 of the Act and allow it if qualified u/s.37 of the Act. 11.7 The case laws relied by the assessee are distinguishable on facts and hence not applicable. The assessee has relied on the decision of Hon’ble Gujarat High Court in the case of CadilaHelath care Ltd 263 CTR 686. In the case of Cadila, the question before the Hon’ble High Court was whether the expenditure incurred on Clinical Trials is allowable u/s35(2AB) or

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 not !. Thus, the Cadila case facts are different hence not applicable in the case of the assessee. 11.8 Accordingly, the Ground Number 4,13,14&15 of the Cross Objection No.4/PUN/2024 are dismissed in above terms for the elaborate reason discussed above. 11.9 The Revenue’s Ground Number 3&4 pertaining to Section 35(2AB) raised in ITA No.998/PUN/2023 are partly allowed as discussed elaborately in above terms. 12. Assessee’s Ground Number 16 in C.O.4/PUN/2024 was not argued by the Ld.AR, no details were filed by the assessee to explain it, hence dismissed. 13 TDS/TCS Credit : The assessee claimed that the AO had not granted claim of Rs.32,567/- out of total claim of Rs.23,52,567/- claimed as TCS/TDS. The AO is directed to verify the claim and allow it if actually paid and the amount on which it is paid is shown as Income of the assessee. Accordingly the Ground Number 5 of the Cross Objection is allowed for statistical purpose. 14. Ground Number 1 of the Assessee’s Cross Objection is general in nature, hence needs no adjudication. We have adjudicated each

ITA No.998/PUN/2023[R]&C.O.No.4/PUN/2024 [A] CTR Manufacturing Industries Private Limited AY 2014-15 issue separately. Accordingly Ground number 1 of the Cross Objection is dismissed. 15. To sum up, Cross Objection filed by the assessee is partly allowed and appeal by the Revenue is partly allowed.

Order pronounced in the open Court on 27th May, 2024.

Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 27th May, 2024/ SGR* आदेशकी�ितिलिपअ�ेिषत/ Copy of the Order forwarded to : अपीलाथ�/ The Appellant. 1. ��थ� / The Respondent. 2. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड�फ़ाइल/ Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकरअपीलीयअिधकरण, पुणे/ITAT, Pune.