AI Drafter 
TaxTMI 
TaxTMI 
2017 (8) TMI 248
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..... 2. Section 35 (2AB) of the Act reads as under: "(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. Following proviso shall be inserted to clause (1) of sub-section (2AB) of section 35 by the Finance Act, 2016, w.e.f. 1-4-2018: Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred. Explanation-For the purposes of this clause, "expenditure on scientific research", in relation to dr....
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....ction 35 (2AB) of the Act. The letter reads as under: "Dear Sir, The R&D Unit of the company situated at Palam- Gurgaon Road, Gurgaon, Haryana-122015 has been approved under Section 35(2AB) of the Income Tax Act by your organization till 31/03/2015. We wish to inform you that our company is working on setting up another Research & Development facility at IMT-Rohtak. A brief write up on the project plan and current status is enclosed in Annexure-A herewith. The setting up of the new R&D project of the company is currently at its initial stage and we intend to approach your good office for a formal approval of the facility u/s 35(2AB) of the Income Tax Act, 1961, in the next few months. We request you to kindly take the above information on your records." This letter was accompanied by a brief write up of the Rohtak R&D Centre. 5. On 31st October, 2011, the Petitioner filed an application for certification of its R&D expenses with the DSIR claiming that an expenditure of Rs. 395 crores has been incurred for AY 2011-12. Though the subject line of this application mentioned the Gurgaon Centre, the Auditor's report accompanying this application gave ....
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.... DSIR, for approval of the Rohtak R&D Centre and annexed therewith the Cooperation Agreement executed with the DSIR. On 2nd February, 2015, the DSIR granted its approval in Form 3CM in respect of the Rohtak R&D Centre from 1st April, 2013 to 31st March, 2015. 10. Thereafter, under cover letter dated 10th March, 2015, the DSIR granted approval in Form 3CL dated 9th March, 2015 for AY 2011-12 in respect of the entire R&D expenditure of Rs. 391.17 Crores, incurred by the Petitioner. This certification, though certifying the entire R&D expenditure of the Petitioner for AY 2011-12, also gave reference of the Gurgaon R&D Centre. This error could have occurred as the subject line of the Petitioner's application dated 31st October, 2011 merely mentioned the Gurgaon R&D Centre and not the Rohtak Centre, though the Auditor's report attached therewith properly delineated the expense for both the Centres. Since, by then, the Petitioner's Rohtak R&D Centre was accorded recognition by the DSIR, on 26th March, 2015, the Petitioner sought a clarification from the DSIR that the total amount claimed as R&D expenditure for the AY 2011- 12 was Rs. 395 Crores, which included a sum of Rs.....
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.... the said Form 3CL dated 9th March, 2015, whereby the amount of R&D expenditure eligible for deduction u/s 35 (2AB) of the Act, relevant to AY 2011-12, was reduced by the said amount of Rs. 124.78 Crores, which was the expense attributable to the Rohtak R&D Centre. The DSIR sent a copy of the same to the Director General, Income Tax (Exemptions) on 11th May, 2015. 13. This Corrigendum is impugned by the Petitioner in the present writ petition which was originally filed seeking the following prayers: "(a) for a Writ of Certiorari or any other Writ, setting aside and quashing the impugned Corrigendum dated 07.05.2015 (Annexure P-14 hereto) (b) for a declaration that the Petitioner is entitled to deduction under section 35(2AB) of the Act in respect of the capital expenditure of Rs. 12478.85 lakhs incurred on the Rohtak research unit during the financial year ended 31.03.2011. (c) for such further and other reliefs as this Hon 'ble Court may consider appropriate, in the circumstances of the case." Notice was issued in the present petition on 28th September, 2015. 14. Thereafter, on 20th November, 2015, the Dispute Resolution Panel (DRP) which wa....
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....penses incurred on both its R&D Centres and sought certification of the same, relevant to AY 2012-13. 18. The Petitioner did not receive any response to its request for certification. On 15th March, 2016 (wrongly dated as 15th March, 2015), the Petitioner again requested for issuance of Form 3CL for certification of R&D expenditure for AY 2012-13, but this was completely disregarded by DSIR. Another request dated 23rd January, 2017 met the same fate and the DSIR did not issue Form 3CL, until then, in respect of either of the R&D Centres for the AY 2012-13. Thus, in the draft Assessment Order dated 30th January, 2017 for AY 2012-13, the AO disallowed the total R&D expenditure of Rs. 734,57,78,218/- Crores (being weighted deduction @200%) and added back the said entire amount to the income of the Petitioner. Assessment Year 2013-14 19. On 31st October, 2013, the Petitioner filed an application for certification of its R&D expenses for AY 2013-14. In this application, the subject headline did not mention as to which Centre the certification was being sought for, though there is specific mention of both R&D Centres in the documents filed therewith. Appendix II to Annexure IV t....
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..... (c) for such further and other reliefs as this Hon'ble Court may consider appropriate, in the circumstances of the case." 22. The prayer for amendment was allowed by this Court on 20th February, 2017. Subsequently, during the pendency of this petition, on 8th March, 2017 and 16th March, 2017, the DSIR has certified the R&D expenditure for AY 2012-13 and AY 2013-14 in respect of the Gurgaon R&D Centre but not the Rohtak R&D Centre and has sent the same to the Income Tax authorities. In view of the fact that the DSIR has, since, certified the R&D expenditure incurred on the Gurgaon R&D Centre, the relief prayed for with respect to the said Centre is infructuous and is not being gone into in this petition. Petitioner's Submissions 23. Mr. S. Ganesh, learned Senior Counsel for the Petitioner submits that since inception, the Petitioner has kept the DSIR in the loop about the R&D Centre at Rohtak. In fact, in the application dated 31st October, 2011, though the subject line of the cover letter only mentions the Gurgaon R&D Centre, Appendix II to Annexure IV which was annexed to the said application clearly had the following note: "Note: The claim inc....
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....e DSIR is evident from the draft Assessment Orders which have failed to take into consideration the R&D expenses that have been incurred by the Petitioner. Respondent's submissions 26. Mr. Gaurav Sarin, learned counsel for the DSIR (Respondent No.1) submits that the Petitioner has deliberately deceived the DSIR and is not entitled to the benefit of Section 35 (2AB). Mr. Sarin submits that the DSIR can consider the request for certifying the R&D expenses of the Rohtak R&D Centre only when there is a Form 3CK specifically filed for that Centre. Since the Form 3CK for the Rohtak R&D Centre was filed only for the AY 2012-13, no benefit can be given to the Petitioner for the AY 2011- 12. He specifically relies upon the Note in the Auditor's report annexed to cover letter dated 30th October, 2012 which reads as under:- "Note: The claim includes expenditure of Rs. 97,84,41,981 on the new R&D center of the company under construction at Rohtak; Haryana for which the Company has already filed application on 30.03.2012 with DSIR for approval of such center." 27. It is the case of Mr. Sarin that since the approval for the Rohtak R&D Centre was pending, the Petitioner ....
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....e Amended Counter affidavit reads as under: "4-F. That the contents of para 4-F of the amended writ petition are wrong and denied. It is submitted that the Reports in Form 3CL in respect of the Gurgaon R&D centre for FY 2011-12 (AY 2012-13) and FY 2012-13 (AY 2013-14) have been sent to the Chief Commissioner (Income Tax Exemption)............." 31. Mr. Asheesh Jain, learned Senior Standing Counsel for the Income Tax Department, Respondent No.2 has also been heard. Mr. Jain submits that the Respondent No.2 has passed the Assessment orders allowing the deductions taking into account the expenditure for the Gurgaon R&D Centres, as per the certifications issued by the DSIR. Rejoinder Submissions 32. In the rejoinder submissions, Mr. Ganesh, learned Senior Counsel for the Petitioner relies upon an affidavit dated 1st August, 2016 filed by the Petitioner of its Managing Director, Mr. Kenichi Ayukawa, which clearly provides all the details of the R&D expenditure incurred by the Petitioner and hence, the submission of the Respondent that the Respondent did not provide the details for the Rohtak Centre, is wholly incorrect as per the record. Further submissions and note....
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.... 1,724,505,762 36. It was the Respondent-DSIR which communicated to the Petitioner on 26th April, 2013 that the application for the Rohtak R&D Centre was premature. This then led to the filing of a second application. Though, the Petitioner made an error in its application for certification of R&D expenses, by not mentioning the Rohtak R&D Centre in the subject line, from the correspondence, it does not appear that there was any intention to mislead the Respondent. The Petitioner has candidly informed the requisite details of both the R&D centres since inception. 37. Both the R&D Centres, at Gurgaon and Rohtak have been granted recognition and the entire R&D expenditure was certified for AY 2011-12, but in the certification dated 9th March, 2015 only the Gurgaon R&D Centre found a mention. The Petitioner merely sought addition of the Rohtak R&D Centre in the said certification by providing the separate figures for each of the Centres. The non-addition of the Rohtak R&D Centre and instead deletion of the expenditure incurred on the same by way of issuance of the Corrigendum dated 7th May, 2015, from the certificatio....
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....he DSIR would be of no relevance. What is to be seen is that the assessee was indulging in research and development activity and has incurred the expenditure thereupon. Once a certificate by the DSIR is issued, that would be sufficient to hold that the assessee fulfils the conditions laid down in the aforesaid provisions. The discussion, which is undertaken by the Gujarat High Court while interpreting, the aforesaid provisions, is extracted below (Pg. 245) : "7....The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the research and development facility, expenditure so incurred is eligible for weighted deduction. 8. The Tribunal has considered the submissions made on behalf of the assessee and taken the view that the section speaks of: (i) development of facility; (ii) incurring of expenditure by the assessee for the development of such facility; (iii) approval of the facility by the prescribed authority, which is DSIR; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere sugge....
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....." 40. The settled position in law is that, for availing the benefit under Section 35 (2AB) of the Act what is relevant is not the date of recognition or the cutoff date mentioned in the certificate of the DSIR or even the date of approval but the existence of the recognition. If a R&D Centre is not recognised it is not entitled to deduction but if it is recognised, it is entitled to the benefit. The Gujarat High Court in Claris Lifesciences (supra) has rightly observed that the date of approval of the R&D Centre, not being a part of the provision, extending benefit only from the date of recognition "amounts to reading more in the law which is not expressly provided". 41. Section 35 (2AB) clearly provides that any expenditure incurred by a party on its R&D facility except, insofar as it relates to land and building is liable to be allowed to be claimed as deduction (twice the amount of expenditure). A perusal of the scheme of the Act especially Sections 35 (2AB), 35A and 35AB reveals in no uncertain terms, that the purpose behind these provisions is to provide impetus for research, development of new technologies, obtaining patent rights, copyrights and know-how. 42. Insof....