Appeal allowed for R&D deduction but dismissed for late PF/ESI contributions. Precedents upheld. Order issued 19-10-2022. &D

The Tribunal partly allowed the appeal, permitting the deduction under Section 35(2AB) for R&D facility approval without requiring the quantum of expenditure approval. However, the appeal regarding the disallowance under Section 36(1)(va) for late PF/ESI contributions was dismissed, following precedents that late deposits do not qualify for deductions. The order was issued on 19-10-2022.

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Issues Involved:
1. Addition of Rs. 18.93 lakhs under Section 35(2AB) of the Income Tax Act.
2. Addition of Rs. 91,215 out of PF/ESI expenses under Section 36(1)(va) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 18.93 lakhs under Section 35(2AB):

During the assessment proceedings, the assessee claimed a deduction under Section 35(2AB) amounting to Rs. 62,55,749/-. The Assessing Officer (AO) requested the Form 3CL certificate, which the assessee failed to provide, leading to the disallowance of the entire claimed expenditure. The assessee later submitted Form 3CL during the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], explaining the delay was due to the accountant's absence. CIT(A) accepted the Form 3CL and granted partial relief based on the approved amount in the form, directing the AO to verify the genuineness of the expenses.

The Tribunal referenced multiple judgments, including the Pune ITAT in Cummins India Ltd. and Force Motors, which clarified that prior to the 2016 amendment, the approval of the quantum of expenditure by the prescribed authority was not mandated. The Tribunal concluded that the deduction under Section 35(2AB) should be allowed based on the approval of the R&D facility, not the quantum of expenditure. Thus, the appeal on this ground was allowed.

2. Addition of Rs. 91,215 out of PF/ESI expenses under Section 36(1)(va):

The AO observed that the assessee made late payments of employees' contributions towards PF/ESI, disallowing Rs. 91,215 under Section 2(24)(x) read with Section 36(1)(va). The CIT(A) upheld this disallowance, citing the Gujarat High Court's decision in CIT vs. GSRTC, which held that deductions for employees' contributions are only permissible if deposited within the due dates specified in the relevant statutes.

The Tribunal noted that the issue was settled by the Jurisdictional High Court in the cases of Gujarat State Road Transportation Corporation and Pr. CIT v. Suzlon Energy Ltd., which affirmed that late deposits of employees' contributions do not qualify for deductions, even if deposited before the due date under Section 43B. Consequently, the Tribunal dismissed the appeal on this ground.

Conclusion:
The appeal was partly allowed, with the Tribunal allowing the deduction under Section 35(2AB) but dismissing the appeal regarding the disallowance under Section 36(1)(va). The order was pronounced in the open court on 19-10-2022.

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