Tribunal affirms CIT(A) decision on R&D deduction for Sipaigachhi unit &D

The Tribunal upheld the decision of the Ld. CIT(A) to allow the deduction under section 35(2AB) for the Sipaigachhi unit, emphasizing that recognition of the R&D facility by DSIR is sufficient for claiming the deduction, regardless of the approval date. The case was remanded to the AO for verification of the actual expenditure incurred by the assessee for the Sipaigachhi R&D unit. The appeal of the revenue was partly allowed.

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Issues Involved:
1. Whether the Ld. CIT(A) was correct in allowing the deduction of Rs. 2,55,25,677/- under section 35(2AB) of the Income Tax Act, 1961 for in-house Scientific Research and Development expenditure of the Sipaigachhi Unit without DSIR approval in Form 3CL.
2. Whether the Ld. CIT(A) was correct in holding that the existence of recognition is required to avail the deduction under section 35(2AB) irrespective of the date of recognition and the cut-off date mentioned in the certificate of the prescribed authority.

Issue-wise Detailed Analysis:

1. Allowing Deduction Without DSIR Approval in Form 3CL:

The AO observed that the assessee claimed a deduction of Rs. 2,79,56,896/- under section 35(2AB) of the Income Tax Act, 1961. However, the DSIR in Form 3CL approved only Rs. 22.90 Lakhs for the Goa R&D unit and did not approve the expenses for the Sipaigachhi unit. The AO disallowed the deduction for the Sipaigachhi unit on the grounds that the DSIR did not certify the expenses in Form 3CL and the recognition was granted only on 26.03.2013.

The Ld. CIT(A) allowed the deduction based on the Gujarat High Court's decision in Banco Products (India) Ltd. vs. DCIT, where it was held that once the R&D facility is approved, the entire expenditure incurred should be allowed for weighted deduction, irrespective of the date of approval. The Tribunal noted that prior to 01.07.2016, Form 3CL had no legal sanctity, and the quantification of the deduction by DSIR became significant only after the amendment to Rule 6(7A)(b) of the Income Tax Rules, 1962.

2. Existence of Recognition Irrespective of the Date of Recognition:

The Tribunal referred to the provisions of Section 35(2AB) and the relevant rules, which state that the deduction is allowed for expenditure incurred on an approved in-house R&D facility. The Tribunal cited the Gujarat High Court's decision in CIT vs. Sun Pharmaceutical Industries Ltd., which held that the date of approval by DSIR is not a cut-off date for eligibility of weighted deduction. The Tribunal emphasized that the statute does not specify that the approval date should be the cut-off date for allowing deductions.

The Tribunal concluded that the AO's disallowance based on the date of approval and the absence of Form 3CL was erroneous. The Tribunal remanded the issue to the AO for verification of the actual expenditure incurred by the assessee for the R&D facility at Sipaigachi, as neither the prescribed authority nor the AO had verified the expenditure.

Conclusion:

The Tribunal upheld the Ld. CIT(A)'s decision to allow the deduction under section 35(2AB) for the Sipaigachhi unit, emphasizing that the recognition of the R&D facility by DSIR is sufficient for claiming the deduction, irrespective of the date of approval. The Tribunal remanded the case to the AO for verification of the actual expenditure incurred by the assessee for the Sipaigachhi R&D unit. The appeal of the revenue was partly allowed.

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