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2019 (7) TMI 1214
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....Officer, in his order u/s 143(3) of the Act, rejected the claim of the assessee for deduction u/s 35(2AB), by holding as follows: "3.2.8 The company was specifically asked whether it had entered into an agreement with the prescribed authority for co-operation in such research and development facility and for audit of accounts maintained for that facility. The company neither furnished the copy of the agreement entered into with the prescribed authority for co-operation in such research and development facility and for audit of the accounts maintained for that facility. The company has only furnished the approval of the DSIR approving the the facility for the purpose of section 35(2AB) from 01.04.2004 to 31.03.2007. Th company has neither furnished the approval in form No 3CL from the DSIR a to the extent to which the expenditure is incurred on these activities. Hence, in the absence of an agreement being entered into with DSIR for co-operation in such research and development facility and for audit of the accounts maintained for that facility and in the absence of the approval in form No 3CL from the DSIR as to the extent to which the expenditure is incurred on these activ....
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....ture entitled to a weighted deduction u/s. 35(2AB) of the Act has been clearly decided in some of cases:- Electronics Corporation of India Ltd. V. ACIT (ITA No.1106/Hyd/2011). DCIT V. Mastek Limited (2013) 263 CTR 671 (Guj), Tejas Networks Limited V. DCIT (2015) 60 taxmann.com 309 (Kar). Also, ECIL order has clearly stated that Form CL defines the amount which is eligible for deduction and the courts have held that DSIR has the authority to decide the quantum of R & D expenditure entitled to a weighted deduction u/s. 35(2AB) of the Act and that the AO/Appellate Authorities do not have the authority to modify viz. enhance or reduce the quantum of R & D expenditure as determined by DSIR which is eligible for deduction. Hence, in the absence of Form CL, the amount that is eligible is not known. Hence, allowing deduction u/s. 35(2AB) becomes ambiguous - as what is to be allowed is not certain. Hence, I agree with the view of the AO, and this ground of appeal is dismissed." (emphasis own) Aggrieved, the assessee is in appeal before us. 4. The learned counsel for assessee submitted that the issue of grant of deduction u/s 35(2AB) of the Act and the issue ....
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.... has not furnished copy of the agreement entered into with the prescribed authority for carrying out inhouse research and development facility. She further submitted that in the case of M/s.Mahindra Electric Mobility Ltd. (supra), the Assessing Officer allowed deduction under the first limb of section 35(2AB) which was 100% of the claim and what was refused was weighted deduction u/s at the rate of 200% and whereas in the case of the assessee, 100% deduction was not granted by the Assessing Officer. She relied on the decision of the jurisdictional High Court in the case of Tejas Networks Ltd. vs. DCIT (2015) 60 taxmann.com 309(Kar) and submitted that in para.27 of the order, the Hon'ble High Court held that the Assessing Officer is bound by the certificate issued by the prescribed authority in Form No.3CL and that the Assessing Officer cannot grant deduction in the absence of such certificate. She further relied on the decision of the constitutional Bench of the Hon'ble Supreme Court in the case of Commissioner of Customs vs. Dilip Kumar, judgment dated 30/07/2018 for the proposition that strict interpretation has to be given where assessee claims an exemption under the Act. Wit....
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....sue. This is not permissible. Judicial discipline mandats that the ld. CIT(A) should have followed the proposition of law laid down by the ITAT on this issue. This sentence also makes it clear that the issue is squarely covered in favour of the assessee by the decision of the jurisdictional Tribunal in the case of M/s.Mahindra Electric Mobility Ltd. (supra). We also find that the submission that the assessee has not furnished copy of the agreement with the prescribed authority is factually incorrect. It is also factually incorrect to submit that the Assessing Officer has not allowed deduction of R&B as revenue expenditure. Even on R&D expenditure on fixed asset, the quantum of expenditure, i.e. the cost of acquisition is not doubted by the Assessing Officer, as depreciation has been granted on the cost of acquisition. We also find that the decision of the jurisdictional High Court in the case of Tejas Networks Ltd. (supra) is not on the issue that arises in this appeal. It deals with a situation where the prescribed authority has allowed certain expenditure in Form 3CL and the Assessing Officer sought to tinker with it. The Court held that it is beyond the jurisdiction of the Asses....
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.... submission of Report in Form 3CL). (ii) As per guideline 5(vi) of the guidelines, the audited accounts for each year maintained separately for each approved centre shall be furnished to the Secretary, Department of Scientific & Industrial Research by 31st day of October of the succeeding year, along with information as per Annexure-IV of the Guidelines. (iv) As per guideline 5(ix) Expenditures, which are directly identifiable with approved R&D facility only, shall be eligible for the weighted tax deduction. However, expenditure in R&D on utilities which are supplied from a common source which also services areas of the plant other than R&D may be admissible, provided they are metered/measured and subject to certification by a Chartered Accountant. (v) departments, other than R&D centre, such as manufacturing, quality control, tool room etc. incurred on such functions as attending meetings providing advice / directions, ascertaining customer choice/response to new products under development and other liaison work shall not qualify for deduction under section 35(2AB) of I.T. Act 1961. (vi) As per guideline 10 Documents required to be submitted by ....
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....ication is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction prescribed authority has only approv....
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....o hold that the assessee fulfils the conditions laid down in the aforesaid provisions. The Hon'ble Delhi High Court followed the decision of the Hon'ble Gujarat High Court and upheld the decision of the Tribunal. The Hon'ble Delhi High Court quoted the following observations of the Hon'ble Gujarat High Court and agreed with the said view: "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 took the view that section speaks of : (i) development of facility; (ii) incurring of expenditure by the assessee for 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 suggest or imply that research and development facility is to be approved from a particular date and, in other words, it is nowhere s....
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....f the Act are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) of the Act should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which Sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. Of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No.3CM as required by Rule 6 (5A) of the Rules. In these facts and circumstances and in the light of the judicial precedents on the issue, we are of the view that the deduction u/s.35(2AB) of the Act ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the Assessee and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee. 10. We find that the proposition of law laid down in this order....