TaxTMI 
TaxTMI 
2021 (10) TMI 1046
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....of Rs. 4,98,89,829/-. The appellant respectfully submits that no disallowance is required to be made of Rs. 41,94,244/- being purchase from disputed parties and also the expenses on Research & Development incurred as per Sec.35(2AB) of Rs. 4,98,89,829/- should have been allowed." 4. Ground No.1 of grounds of appeal is in respect of confirming the disallowance at 10% of disputed purchases made during the year. The Assessing Officer while completing the assessment noticed that the assessee is one of the beneficiaries of various dealers who provide only accommodation entries without any delivery of goods based on the information received from Sales Tax Department, Mumbai. In view of the above information a survey u/s. 133A was carried out on 22.11.2012 in the business premises of the assessee. The assessee declared Rs..9.27 crores as additional income on account of non-genuine purchases for Financial Years 2008-09 to 2011-12. For the Financial Year 2010-11 relevant to the A.Y. 2011-12 the declaration made by the assessee in the form of non-genuine purchases was at Rs..4,19,42,439/-. The Assessing Officer noticed that assessee company has not filed any revised return of inc....
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....and sales etc. Ld. Counsel for the assessee submits that even though Tribunal estimated the profit element in alleged non-genuine purchases at 10% on a flat basis this was done without the basis of any remand report from the Assessing Officer. Whereas during the assessment year under consideration the Ld.CIT(A) has called for the remand report wherein the assessee has furnished all the required details in respect of purchases, consumption, sales, stock reconciliation etc., and there were no adverse comments by the Assessing Officer and therefore estimation at flat rate of 10% is not justified rather it is excessive. Therefore, he pleads that the disallowance restricted by the Ld.CIT(A) at 10% be deleted. Without prejudice, Ld.Counsel for the assessee submits that, if at all, if any estimation is required to be made the disallowance may be restricted to 2% of the alleged non-genuine purchases. 7. On the other hand, Ld. DR strongly supported the order of the Assessing Officer. 8. We have heard the rival submissions, perused the orders of the authorities below and the documents on record. We have perused the remand report of the Assessing Officer furnished before the Ld.CIT(A). ....
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.... Less: income earned by R & D centre Net Expenditure incurred 3,27,31,435 1,71,58,393 4,98,89,829 11. In order to verify the eligibility of the assessee company for claim of weighted deduction, the Assessing Officer required the assessee to provide various details. Assessee furnished various details in respect of its claim and the relevant details are as under: - Date Event Remarks 08.02.2011 Filing of Application dated 28.01.2011 with the DSIR for recognition of the facilities The assessee-appellant made the requisite application for the in-house R&D facilities owned by it 02.06.2011 Date of granting recognition to the R&D Facilities of the assessee-appellant at Ghatkopar and Mahad by DSIR The approval from the DSIR does not mention a specific from when the facilities is approved but mentions that the facilities is approved till 31.03.2014 11.08.2011 Filing of Form 3CK with the DSIR The assessee-appellant Filed form 3CK after receiving approval from DSIR since the said approval is required to be attached to Form 3CK seeking approval u/s 35(2AB) 13.10.2011 DSIR grants approval in Form 3CM T....
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....being eligible to claim weighted deduction. Unless such a report is obtained by the assessee company for the relevant period, no such weighted deduction is allowable to the assessee company u/s 35(2AB)(i) of the Act. vii. 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. The weighted deduction is allowable only on the expenditure as approved by the DSIR for the period for which deduction is claimed. viii. The expenditure eligible should necessarily be reported in the audited financial statement prepared for the purpose of published annual report as well as for the purpose of Income Tax returns. 5.9 In the light of above essential conditions required to be fulfilled for being eligible to claim weighted deduction u/s 35(2AB) of the Act, it is seer, that the assesse company does not fulfill the basic conditions required for being eligible for claiming deduction u/s 35(2AB) of the Act as discussed under for each of the conditions mentioned above." ....
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....reement with the submissions of the assessee as it has not satisfied the conditions of Sec 35(2AB) during the year under consideration. Although it has made an application during the year, DSIR has clearly mentioned the effective date of the approval date in the certificate. The appellant company has only applied in form 3CK (prescribed form of application for approval u/s 35(2AB) of the Act on 11.08.2011) and the application dated 28.01.2011 is only the application for seeking recognition by DSIR, which is not the same as the application in mandatory form 3CK which was made only on 11,08.2011, Therefore, the appellant's submission that it has completed all the requirements and filed the necessary application for approval on 08.022011 is not acceptable as the form 3CK was filed only on 11.08.2011. The condition of the approval has to be satisfied with respect to the period for which weighted deduction is claimed. The subsequent approval effect from period after March 2011 would not make the unit eligible for claiming deduction in respect of the period when the said facility is not approved. The effective date of approval of the facility is the cut-off point for the purpose of c....
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..... PY2010-11 i.e. AY2011-12. b) The mandatory form 3CK seeking approval under the Act was filed only on 11.08.2011 i.e. after the end of the relevant previous year c) That the subsequent approval effective from the period after March, 2011 would not make the unit eligible for deduction. d) That the Appellant has not produced any documents manifesting the compliance of condition pertaining to entering into an agreement for co-operation in such research and development facility. e) That the condition regarding maintenance of separate books of account and getting the same audited by CA are not satisfied. f) The judgements relied on by the Petitioner are distinguishable (without stating how). As could be seen, the Ld. CIT (A) has affirmed the order of the Ld. AO and sustained the disallowance simply relying on the order of the Ld. AO (albeit on fewer grounds than that done by the Ld. AO) without even remotely considering the submissions made by the Assessee. 2. It is humbly submitted that detailed submissions were made before the Ld. CIT(A) dealing with each and every aspect of the claim and each and every observation of the....
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....r recognition was made on 08.02.2011. However, the recognition from DSIR was itself received on 02.06.2011 i.e. after the close of the financial year for no fault of the Assessee. As such, only after the receipt of the said recognition the Assessee could file the application in Form 3CK and in response to which the approval was granted to the facilities in Form 3CM. As such, the delay was not attributable to the Assessee at all. In fact, it has been held that even in such cases, the deduction u/s 35(2AB) is allowable to the Assessee since the date of approval relates back to the date of application which in the present case is 08.02.2011 [Ref. Proceedings. 28 to 30 of CIT(A)]. Even the case law (Banco Products Ltd. v/s DCIT - Tax Appeal No. 1057 of 2017, Hon'ble Gujarat High Court and other judgements) relied on this proposition has not been considered by the Ld. CIT(A). The issue stands covered even by this case law (copy enclosed). v. As regards the judgements relied on by the Assessee-Appellant, it needs to be stated that it has been invariably held by the judgements of Hon'ble High Courts some of which have also been approved by the Hon'ble Supreme Court, that ....
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....e P&L account of Mahad Unit at para 5.9.6 and also at various places made references to separate accounts. As such, the observations of the AO / CIT(A) that no separate books are maintained for the R&D facilities, are patently incorrect and contrary to the facts on record. In any case, the entire details including the separate accounts were also furnished with the AO during the course of assessment alongwith letters dated 12.12.2013, 13.03.2014, etc. The books of accounts were actually produced before the AO during the course of assessment which have been admittedly verified by him. [Ref. proceedings. 32 & 33 of CIT(A)] " 15. Ld. DR vehemently supported the orders of the authorities below. 16. It was primarily contended by the Ld. Counsel for the assessee that the issue in appeal is already decided by numerous judgments of the Hon'ble Jurisdictional and other High Courts in favour of the Assessee. In this regard Ld. Counsel for the assessee also furnished copies of various judgements along with a note giving gist of the said judgements. The Ld. DR on the other hand relied on the orders of the lower authorities. 17. We have heard the rival submissions, perused the order....
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.... Maruti Suzuki India Ltd. v. UOI in IMP. (C) A/o. 5306 of 2015. In fact, in this case, the approval to the facilities was granted in 2015 and the claim for deduction was made pertaining to expenditure incurred since inception i.e. AY 2011-12. The facts as reproduced from the said judgement are as follows: "1. The Petitioner-Maruti Suzuki India Ltd. is a leading automobile company in India. It has two Research & Development Centres ('R&D Centres'), one at Gurgaon and one at Rohtak, Haryana. The question that arises in this writ petition is - Whether the Petitioner is entitled to deduction under Section 35 (2AB) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') in respect of the expenditure incurred by it for its R&D Centre at Rohtak for the Assessment Year ('AY') 2011-12, AY 2012-13 and AY 2013-14. ..... Assessment Year 2011 -12 4. The Petitioner, on 30th March, 2011 wrote to the Secretary, Department of Scientific and Industrial Research ('DSIR') which is the 'Prescribed Authority' as per Section 35 (2AB), that it is in the process of setting up a second R&D Centre at Plot No. 1, Sector 338....
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....) the lay out plan of the R&D Centres along with the photographs; (ii) break-up of the indigenous R&D equipments; (iii) imported R&D equipments and the details thereof; (iv) particulars of R&D projects which were under progress. This was followed up with a further application on 21st February, 2014 giving more details of both its R&D Centres. 8. On 26th March, 2014, the DSIR granted recognition to both the R&D Centres of the Petitioner in the following terms: "Dear Sirs, This has the reference to renewal of recognition of your in-house R&D unit(s) and also for recognition of in-house R&D unit(s) by the Department of Scientific and Industrial Research. 2. This is to inform you that it has been decided to accord renewal of recognition to the in house R&D unit(s) of your firm at (i) Pa I am- Gurgaon Road, Gurgaon and fresh recognition to the in-house R&D unit at (ii) Plot No. 1, Sector 33-B and 33-C, IMT Rohtak from 25.02.2014 by the Department of Scientific and Industrial research. The recognition is valid upto 31.03.2015. Terms and Conditions pertaining to this recognition are given overleaf. 3. This le....
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.... relied upon the Guidelines for approval in Form 3CM of in-house R&D Centres recognised by the DSIR issued in May, 2010. Clause (iv) of para 6 of the 'GUIDELINES FOR THE APPROVAL IN FORM 3CM OF IN-HOUSE R&D CENTERS REGGNISED BY DSIR AND SUBMITION OF REPORT IN FORM 3CL UNDER SECTION 35 (2AB) OF IT ACT 1961' reads as under: "iv. In case of firms having signed agreement of cooperation u/s. 35(2AB) with the Prescribed Authority for one or more R&D centers approved with DSIR which implies that they have been maintaining separate accounts for R&D:- the R&D Centre newly setup by such firms may be approved from the year in which investments on these centers of capital and revenue nature commenced or after the agreement of cooperation was signed, (which ever was later) to enable these companies to claim weighted tax deduction on eligible R&D expenditure of capital and revenue on the new centers'' 12. It was the stand of the Petitioner that since the DSIR has approved the recognition of the Rohtak R&D Centre, the expenditure for R&D incurred thereon, deserves to be considered since inception, and that it would therefore, be entitled to claim deduction from AY 20....
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....ption i.e., even prior to recognition being accorded is entitled to the benefit under Section 35 (2AB) of the ITA. The legislative intent behind this provision is to encourage innovation, research and development in India and non-grant of the benefit under Section 35 (2AB) of the Act defeats the legislative intent. The Auditor's certificate on record is categorical that the Petitioner is maintaining separate sets of accounts for the Gurgaon and the Rohtak Centres and the necessary details of the expenditure incurred therein have also been submitted as far back as on 31st October, 2011 and even thereafter. Even the Form 3CM which was issued by the DSIR under cover letter dated 2nd February, 2015, mentions both the Gurgaon and the Rohtak R&D Centres. Just because the Petitioner sought a correction in the certificate of expenditure which was issued to it, the complete removal of the R&D expenditure of the Rohtak R&D Centre in the certification issued by the DSIR is wholly unsustainable. 39. The Petitioner has fulfilled all the necessary conditions for availing the benefit under Section 35 (2AB) of the Act in view of the settled position in Sandan Vikas (supra) and Claris ....
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.... incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on a plain reading of the section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of the rule and Form clearly suggests that once facility if approved, the entire expenditure so incurred on development of the research and development facility has to be allowed for weighted deduction as provided by section 35(2AB). The Tribunal has also considered the legislative intention behind the above enactment and observed that to boost the research and development facility in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, the inten....
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....d omitted to obtain the approval under Form 3CK, it is not entitled to the benefit of Section 35(2AB) since 2004. The facts of the present case are different and there has been no omission by the Petitioner herein to obtain approvals. The stage for approval arises after the recognition is granted by the DSIR, for which the application was filed right at inception by the Petitioner. Upon obtaining recognition, which was granted on 26th March 2014, the Form 3CK was filed on 31st March 2014. There has been no lapse of time, unlike in Apollo Tyres (supra) wherein the recognition was granted on 31st March, 2004 and the Form 3CK application was made only on 21st August, 2008. Thus the present case is clearly distinguishable from the facts in Apollo Tyres (supra). 43. In the present case, it could be true that there are some errors in the Petitioner's application dated 31st October, 2011, however, one cannot ignore that since 2011, the Petitioner has been candid with the DSIR about its expenses for the Gurgaon and Rohtak R&D Centres and has given the break-up of the expenditure incurred thereupon; has submitted the Auditor's certificate required for the same; has entered ....
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....ction should enure to assessee for the whole of the assessment year and cannot be restricted from the date of the notification, is sustainable. 3. When the Commissioner of Income-tax in exercise of powers under section 263 of the Act sought to revise the order of the assessing authority relied upon the certificate issued by the prescribed authority, namely DSIR, wherein it was mentioned that for the year 2004-05, the research and development expenditure incurred after September 21, 2004 to March 31, 2005 would be eligible for weighted deduction, the Tribunal while setting aside the order of the Commissioner of Income-tax relied upon the decision of the Gujarat High Court reported in CIT v. Claris Lifesciences Ltd.[2010] 326ITR 251. 4. In the said decision, the Division Bench of the Gujarat High Court noted the facts which are almost identical to the facts involved in the case on hand. The Division Bench of the Gujarat High Court has further noted that the DSIR in its approval letter dated February 27, 2001, by way of note mentioned that the facility approved for the purpose of section 35AB(2) was from February 27, 2001 till March 31, 2003. However, the assessee in....
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....ng on the allowability of deduction u/s 35(2AB) of the Act the Hon'ble Gujarat High Court held as follows: - "9. The provisions nowhere suggest or imply that the research and development facilities is to be approved from a particular date and in other words, it is nowhere suggested that the date of approval only will be the cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop the facilities, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facilities or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on a plain reading of the section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facilities. The Tribunal has also considered rule 6(5A) and Form No. 3CM and come to the that a plain and harmonious reading of the rule and Form clearly suggests that once the facilities is approved....
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....o have been granted. On the basis of above discussion, we are of the opinion that the assessee was entitled for weighted deduction u/s. 35(2AB). - at best it could be said that it was only a procedural defect and from the various decisions, noted in the arguments of Id Counsel for the assessee, it is clear that merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied." 23. Similar view was taken in the case of Matrix Comsec P. Ltd. v. ACIT in ITA Nos.2446 & 2907/Ahd/2013. 24. In view of the above, merely because approval is received in the subsequent year, the deduction u/s 35(2AB) could not be denied to the assessee. 25. Further, the denial of deduction u/s. 35(2AB) of the Act on the ground that the application for approval in form 3CK was made after the close of the Financial Year is also unsustainable. The said issue is also decided in favour of the assessee by the judgment of the Hon'ble Gujarat High Court in the case of Banco Products I. Ltd. v. s DCIT in Tax Appeal No. 1057 of 2017. The facts in this case as taken from the said judgement are as follows: - "2. The appellant assessee is a company registered ....
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.... 5. The assessee carried the matter in appeal before the CIT(Appeals). CIT(Appeals) dismissed the assessee's appeal confirming the view of the Assessing Officer. Judgment in case of Claris Lifesciences Ltd.(supra) was distinguished in the following manner: "In the case of Claris Lifesciences Ltd. (2008) 174 Taxman 113 (Gujarat) relied upon by the appellant, Hon'ble Gujarat High Court decided the matter in favour of the assessee as per para 8 of the decision on the ground that the approval was granted during the previous year relevant to assessment year in question in that case. Based on this fact, the High Court had held that assessee was entitled to claim weighted deduction u/s.35(2AB) in respect of entire expenditure incurred during the previous year. In appellant's case, facts are different in as much as the approval was received in F.Y. 200809 i.e after F.Y. 200708 was already over and even the application seeking approval was made in F.Y. 200809. Decision in the case of Claris Lifesciences Ltd. is therefore distinguishable and not applicable to appellant's case." Against the said order of the CIT(A), the assessee carried the matter in further appe....
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.... or production of any article or thing, except those specified in the Eleventh Schedule, where it incurs any expenditure on scientific research (excluding the expenditure in the nature of cost of any land or building) on in house research and development facility as approved by the prescribed authority. At the relevant time, such deduction was one and one half times of the expenditure incurred. Said section contains various conditions subject to which such deduction will be granted. However, the main requirements are that the expenditure should be on scientific research on in house research and development facility as approved by the prescribed authority. As observed by this Court in case of Claris Lifesciences Ltd. (supra) and Delhi High Court in case of Maruti Suzuki India Ltd.(supra), this provision is aimed at encouraging in house research and development facilities for specified purposes. The legislature recognised the weighted deduction on such expenditure. The approval of such facility by the prescribed authority is a prime condition. 10. In case of Claris Lifesciences Ltd.(supra), this Court examined a situation where the Tribunal had allowed the assessee's cla....
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....stricted the assessee's claim for deduction in relation to such expenditure which was incurred prior to 1.4.2008 on the ground that the approval was granted for two years between 1.4.2008 to 31.3.2010. Combined reading of the judgment of this Court in case of Claris Lifesciences Ltd. (supra) and judgment of Delhi High Court in case of Maruti Suzuki India Ltd. (supra), would show that period during which the approval is granted is not relevant as long as such approval has been granted and expenditure has been incurred for the specified purpose. As noted, the provision is aimed at promoting development of inhouse research and development facility which necessarily would require substantial expenditure which immediately may not yield desired results or could be corelated to generation of additional revenue. By the very nature of things, research and development is a hit and miss exercise. Much of the efforts, capital as well as human investment may go waste if the research is not successful. The legislature therefore, having granted special deduction for such expenditure, the same should be seen in light of the purpose for which it has been recognised. Research and development fac....
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....stricting these bogus claims goes against the principles of Sections 68 and 69C of the Income Tax Act. 3. Whether on the facts of the instant case and in law, the CIT(A) erred in restricting the disallowance U/s.14A to the extent of exempt income earned by the Assessee Company, without having regard to the fact that the disallowance was rightly worked out in accordance with Rule 8D(2)(ii)." 29. Ground Nos 1 and 2 are in respect of Ld.CIT(A) restricting the disallowance @10% of bogus purchases. As we have restricted the disallowance of alleged bogus purchases to 6% while adjudicating the ground raised by the assessee in its appeal in ITA.No. 3345/Mum/2019, for the reasons given therein, we reject the ground of appeal raised by the revenue. We order accordingly. 30. In so far as Ground No. 3 of grounds of appeal is concerned i.e., in respect of disallowance u/s. 14A r.w. Rule 8D(2)(ii) of I.T. Rules the Ld.CIT(A) deleted the disallowance of Rs..39,354/- observing as under: "6.2 Decision I have considered the facts of the case material available on record. The appellant contested against disallowance of Rs. 39,3547- u/s 14A of the Act. Though the appel....
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....harmaceuticals and formulations, filed its return on 27.07.2009 declaring income at NIL after setoff of brought forward losses. The assessment was completed u/s. 143(3) of the Act on 29.12.2011 determining the income at NIL under normal provisions of Act after set off of brought forward losses. Later on the assessment was reopened u/s. 147 of the Act based on the information received from DGIT (Investigation), Mumbai that the assessee has obtained accommodation entries in the form of purchases from various dealers without any delivery of goods. In the course of the re-assessment proceedings the assessee was required to prove the genuineness of the transactions made from the four parties referred to in the Assessment Order where the assessee claimed to have made purchases of Rs..15,55,062/-. Assessee vide letter dated 25.02.2014 submitted copies of ledger of the parties with copies of invoices and claimed that the purchases were genuine. Subsequently, the assessee filed revised return of income on 18.01.2013 offering Rs..15,55,062/- as income. Subsequently, the assessment was completed by the Assessing Officer disallowing the purchases of Rs..15,55,062/- and computed the income unde....
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.... that further details were also under preparation which were to be filed before AO but before it can be filed, the AO completed the assessment on 04.03.2014 even though the assessment was getting time barred on 31.03.2014. The appellant, therefore, filed additional evidence before the CIT(A) in support of its claim moved the petition u/r 46A to admit such additional evidence. In the petition, the appellant clarified that all the evidence now tendered were all available and were in the process of filing but it could not be filed during the re-assessment proceedings. However, the AO suddenly closed the assessment and passed the order on 04.03.2014 even though there was sufficient time to pass the" order till 31.03.2014, During the remand proceedings before AO, further evidence was filed by letter dt.07.08.2018 in support of its claim that the sum of Rs. 15,55,062/- is actually incurred and that offering such amount as additional income in revised return was an error. After verifying the details filed during the remand proceedings and personally hearing the appellant's AR, the AO made a Remand Report dt.29.11.2018 in which inter-alia in Para 6.2 the AO has observed Remand....
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....n made in the statement recorded during survey proceedings u/s 133A carried out on the appellant. Since the income is voluntarily offered, I hold that it has been correctly offered and there is no infirmity in the assessment order as the findings have been reiterated in the remand report correctly by the AO, therefore, the ground raised by the Appellant is dismissed." 37. As could be seen from the above order of the Ld.CIT(A) in fact a remand report was called for on the genuineness of the purchases from the Assessing Officer and during the remand proceedings the assessee furnished party wise, item wise purchases/expenses in the form of chart, copy of bill, Goods Received Note (GRN), Purchase orders, transport receipts etc., to prove the genuineness of the purchases. Assessee also furnished details of packing materials used and importantly assessee filed confirmations from parties from whom the purchases were made. We observe from the remand report that the Assessing Officer has not found any adverse inference on the evidences furnished by the assessee in support of its claim that the purchases made are genuine. The only grievance of the Assessing Officer in the remand report is....