TaxTMI 
TaxTMI 
2023 (5) TMI 1101
X X X X Extracts X X X X
X X X X Extracts X X X X
....arm's length price (ALP) of the international transactions. The TPO, vide order dated 29/01/2014 made the following transfer pricing adjustments:- 1. Interest on delayed export receivables Rs. 17,96,119/- 2. Interest on share application money Rs. 56,63,59,478/- 3. Guarantee Commission Rs. 8,77,76,150/- 4. Sale of Shares of Strides SA Pharmaceuticals Pty.Ltd Rs. 1,14,66,873/- Total Rs. 66,73,98,920/- 3. The Assessing Officer passed a draft assessment order incorporating transfer pricing adjustments. The Assessing Officer further made the following disallowances:- 1. Disallowance u/s 10B Rs. 11,44,12,969/- 2. Disallowance of weighted deduction u/s 35(2AB) Rs. 5,84,54,070/- 3. Disallowance of premium on FCCB Rs. 55,44,94,544/- 4. Disallowance under section 14A Rs. 3,64,12,003/- 4. The Assessing Officer also made adjustment to the book profit under section 115JB towards the amount disallowed under section 14A and also towards the provision for leave encashment and doubtful debts. Aggrieved, the assessee filed objections before the DRP. The Ld.DRP gave partial relief to the assessee with respe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a hypothetical/notional income to tax by way of imputing interest on delayed realization of receivables of the Appellant; 2.3 Without prejudice to the above, the learned TPO/learned AO erred inadopting and the Hon'ble DRP erred in confirming the interest rate at 8 per cent, with arbitrary assumptions, for the purpose of imputation of interest on such receivables; and 3. Without prejudice to the grounds mentioned in ground 2; the learned TPO/ learned AO and the Hon'ble DRP have erred in computing interest on a gross basis i.e. without taking into consideration some of the export proceeds which have been realized before due date. 4. Imputation of Interest on balance of Share application money pending allotment - Rs. 48,22,30,068/- The learned AO/ the learned TPO and the Hon'ble DRP erred in facts and law in imputing the interest on share application money pending allotment, and in doing so have grossly erred: 4.1 that re-characterization of the transactions (treating share application money as loan) / which is not permissible under the transfer pricing provisions i.e. Section 92-92F of the Act; 4.2 in failing to apprec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6.5 in subjecting a hypothetical income to tax by way of charging a commission of 1.75% as corporate guarantee fee / commission, which is unwarranted and arbitrary in nature; 7. Upward adjustment to the consideration received towards the sale of investment to the Associated enterprise - Rs. 1,14,66,873 That on the facts and circumstances of the case, the learned AO, the learned TPO erred in making and the Hon'ble DRP in confirming the upward adjustment towards the consideration received on account of sale of investment in subsidiary to the Associated enterprises and thereby taxing notional income of Rs. 1,14,66,873/- and in doing so have grossly erred: 7.1 in failing to appreciate the fact that the underlying transaction, does not fall within the ambit of international transaction in the year of disposal of investment i.e. FY 2009-10, therefore, the transfer pricing provisions were not applicable to the same. 7.2 In failing to appreciate the fact that Appellant had sold the investment in its subsidiary, only to comply with the RBI regulations, as per which there was restriction to hold more than two direct wholly owned overseas subsidiaries b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....antamount of production and qualifies for the purpose of deduction under section 10B of the Act. 1.4. The learned AO has failed to differentiate the facts of the case of the Appellant for AY 2010-11 with that of AY 2007-08 and grossly erred in reaching the conclusion which is similar to that of AY 2007-08 while disallowing the deduction under section 10B of the Act. 1.5. Without prejudice to the above, the Hon'ble DRP and the learned AO erred in failed to appreciate that the activity of compilation of 'Dossier' inter alia include to manufacture of exhibit batches and which is a vital activity in production of Dossier. 1.6. Without prejudice to the above, the Hon'ble DRP and the learned AO failed to appreciate the fact that the activities of STAR unit fall under information technology enabled products or services for the purpose of deduction under section 10B of the Act as notified by CBDT vide Notification No. SO 890(E) dated 26/09/2000. 1.7. Without prejudice to the above, the Hon'ble DRP and the learned AO have erred in not appreciating that, the definition of 'information Technology Enabled Services' as per provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....redemption of FCCBs as the same have been actually redeemed at premium by the Appellant 3. Disallowance of FCCB issue expenses of Rs. 1,69,13,062/-. 3.1. The learned AO and the learned DRP erred in disallowing FCCB issue expenses of Rs. 1,69,13,062/- being l/5th of the issue expenses on FCCB. 3.2. The Hon'ble DRP and the learned AO have erred in not appreciating the fact the l/5th / of total issue expenses was allowed in the Appellant's own case for AY 2006-07, AY 2007-08 and AY 2009-10 by Hon'ble DRP. 4. Disallowance under section 14A of Rs. 3,64,12,003/-. 4.1. The Hon'ble DRP and the learned AO have erred in law and on facts by invoking Section 14A of the Act to earning exempt income. Section 14A of the Act read with Rule 8D in determining expenditure in relation to earning exempt income. 4.2. The Hon'ble DRP and the learned AO failed to appreciate that the Appellant during the financial year relevant AY 2010-11, the Appellant has not earned any exempted L, income so as to apply provisions of section 14A of the Act. 4.3. The learned AO grossly erred in invoking provisions of section 14A r.w. Rule 8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cords particularly with regard to the computation of total income and tax liability thereon. The Appellant reserves its right to raise such grounds relating to the same. 7. Initiation of penalty proceedings under section 271(1)(C ) of the Act The learned AO has erred in law and facts in initiating penalty proceedings under Section 274 read with Section 271(l)(c) of the Act The Appellant craves leave to add, alter and modify the above grounds during the course of the appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided." 5.1 The assessee also raised additional grounds with respect to the following:- "1 : 0 Re.; Disallowance u/s. 14A while computing 'book profits' u/s. 115JB of the Income-tax Act, 1961: 1 : 1 The Assessing Officer and the Dispute Resolution Panel have erred in increasing the 'book profits' for the purpose of section 115JB of the Income-tax Act, 1961 ('the Act') by an amount of Rs. 3,64,12,003/- being the disallowance u/s. 14A of the Act read with Rule 8D of the Income-tax Rules, 1962. 1 : 2 The Appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... additional grounds do not require examination of new facts otherwise than on record. Therefore, placing reliance on the judgment of the Hon'ble apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), the additional grounds for substantial cause and justice is taken on record and we proceed to dispose of the same on merits. 9. Transfer Pricing Grounds: 9.1 Interest on delayed receivables 9.1.1 The Transfer Pricing Officer (TPO) noticed that assessee is having some receivables outstanding from the AE and imputed interest @8% after considering 30 days'grace period as per the terms of payment allowed by the assessee to its AE. The assessee submitted before the Ld.DRP that the details of invoice-wise realization had been submitted before the TPO, which have not been considered by the Ld.TPO. The assessee also submitted that the interest @8% has been charged on adhoc basis. The Ld.DRP did not accept the submissions of the assessee and upheld the adjustment. 9.1.2 Before us, the Ld.AR submitted a table showing the details of receivables along with the realization. The Ld.AR submitted that in most of the cases, the amount has been realized wel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he realization period and the overall average realization period being well before the grace period, in our view, there is no requirement to charge any interest towards receivables and, therefore, we hold that the TP adjustment made in this regard should be deleted. This ground is allowed in favour of the assessee. 9.2 Interest on share application money 9.2.1 The TPO observed that the assessee has given share application money to Stripes Acrolab International, UK and also to Starsmore Ltd, Cyprus. The TPO charged interest @8% on the share application money and imputed interest as per below working:- Particulars Starsmore Ltd Strides Acrolab Internal Ltd Opening Balance 486,64,50,167 244,96,00,836 Additional Investment by assessee 2,03,08,676 Allotted during the year 40,87,50,000 Amount refunded by AEs during the year 32,46,73,729 Closing Balance 439,33,35,114 244,96,00,836 Average 462,98,92,640 244,96,00,836 Sr.No. Name of AE Avg. Bal Interest @8.00% p.a. 1 Starsmore Limited 4,629,892,640 37,03,91,411 2 Strides Acrolab International Limited 2,449,600....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39;ble Bombay High Court in the case of DIT v/s Besix Kier Dabhoi -(2012) 210 Taxman 151 (Bombay) that the Revenue has no power to re-characterize a transaction entered into by the Assessee. Therefore admittedly, the AO or the TPO are not empowered to convert and re-characterize a transaction of share application into a loan transaction. This aspect of the matter and this judgment has been overlooked by the DRP in its order for earlier year. As such, it could not be followed. Secondly, the remittance of the said share application money was approved and supervised by the RBI and the purpose of remittance as approved was investment in share capital. As such, there is no dispute to the fact that the amounts paid were on account of investment in share capital of the associates or subsidiaries. We further note that even otherwise the transaction of issue of shares is a capital account transaction and not a revenue account transaction and therefore could not be said to result in any income per se. We further notice that the co-ordinate benches of the Tribunal have also taken a view that no imputation of interest could be made on a transaction of share application money paid to subsidiar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the petitioner to prosecute its objections before the Dispute Resolution Panel and the Dispute Resolution Panel disposing of the same in accordance with Vodafone IV. Thus, in the present facts the distinction sought to be made on the ground of alternative remedy is not such as to warrant not entertaining the petition. 10. The second distinguishing feature from that of Vodafone IV, as canvassed by the Revenue, is that Form 3CEB in respect of the transaction of issue of shares to its associated enterprises, is not disclosed as an international transaction. This the petitioner was obliged to do as the transaction is an international transaction. ' This was in fact done by the petitioners in Vodafone IV. This stand by the Revenue is a little curious as in Vodafone IV the Revenue contended that as the petitioners therein had filed Form 3CEB in respect of issue of shares to its associated enterprise, they had submitted to the jurisdiction of Chapter X of the Ac! and cannot now contend that the proceeding to tax such shortfall on capital account is without jurisdiction, in this case, an exactly opposite stand is being taken by the State. The State is expected to be consiste....
X X X X Extracts X X X X
X X X X Extracts X X X X
....set aside the order dated January 30, 2013, of the Transfer Pricing Officer to the extent it holds that the arm's length price of issue of equity shares is Rs. 183.44 per share as against Rs. 10 per share as declared by the petitioner and consequent deemed interest brought to tax on the amount not received when benchmarked to the arm's length price. Accordingly, we set aside the draft assessment order dated March 30, 2013, to the extent it seeks to bring to tax the arm's length price of the share issued by the petitioner to its non-resident associated enterprises and also deemed interest which is sought to be brought to tax on the ground of non- receipt of the consideration equivalent to the arm's length price by the petitioner on issue of equity shares. It is further clarified that the petitioner's objection before the Dispute . Resolution Panel filed on April 25, 2013, on all issues save and except the issue covered by this order would be considered by the Dispute Resolution Panel on its own merits." 19. The Hon'ble Bombay High Court further in the case of Equinox Business Parks (P.) Ltd. vs. Union of India has held as under: "This has be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d direct the AO to delete the addition on account of notional interest of Rs. 2,44,20,173/-. 15. Similar view is also taken in other judgments relied on by the Ld. AR. Since, no contrary judgments have been brought to our notice, relying on the above stated judgments, we direct the AO to delete the impugned adjustment made by the TPO as affirmed by the DRP towards notional interest on share application money for belated allotment of equity shares." 9.2.6 We also notice that similar view has been held by the Tribunal in assessee's own case for A.Ys 2008-09 & 2015-16. Considering the facts being identical for the year under consideration also, respectfully following the above decision, we hold that no interest shall be imputed on the share application money. It is ordered accordingly. 9.3 Imputing commission with respect to Corporate Guarantee 9.3.1 During the assessment proceedings, the assessee submitted the details of corporate guarantees before the TPO. The TPO charged 1.75% towards bank guarantee commission and accordingly made a transfer pricing adjustment. The assessee submitted before the Ld.DRP that TPO did not give any basis but merely relied on the direct....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Everest Kanto cylinders [Everest Kento Cylinder Ltd. [IT Appeal No. 7073 (Mum.) of 2012, dated 23-11-2012] ] has held that guarantee commission should be charged @ 0.5% p.a. for providing corporate guarantee for the purpose of determining arm's length price. Both the parties could not give us any reason to deviate from the above arm's-length price as held by the coordinate bench, which has been upheld by the honourable Bombay High Court. The case of Asian Paints [supra} cited before us for benchmarking @ 0.20 % has different and distinguishing facts. Further corporate guarantee commission is to be charged at that amount of Guarantee given and cannot be reduced to the extent of amount of borrowings by the AE as both are separate and distinct facts. Considering the various decisions in this regard, we direct the AO to limit the adjustment to 0.5% p.a. on the amount of corporate guarantee provided based on the period for which the guarantee was operative in respect of each of the AE's during the year under consideration. The learned transfer-pricing officer is directed to compute the arm's-length price of the corporate guarantee at the rate of 0.5%. Accordingly ground number 4 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal investment (510*5061,82) 25,81,528 1,61,60,883 Sale value of investments 4,494,036 Variation / Adjustment 1,14,66,847 9.4.2 The assessee submitted before the DRP that as per the valuation report based on net effect value method and discounted cash flow method, the share price is in the range of Zar 1371 to Zar 1515 and the price charged is within this range and accordingly, the transaction was considered to be at arm's length. The assessee also submitted that the TPO while recomputing the valuation, has taken into consideration the revaluation reserve also which should not be included for the purpose of arriving at the share price. The assessee further submitted that sale of investments in Stripes SA Pharmaceuticals Pty Ltd, South Africa is part of internal re-structuring to streamline and simplify the overseas structure of the assessee and was not intended to be a tax saving exercise. The DRP, after considering the submissions of the assessee re-worked the valuation of shares using discounted cash flow method to arrive at value per share at Zar 4754.32. The DRP concluded that since the value adopted by TPO at Zar 5061.82 is reasonably c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion reserve must be not taken into account while calculating the value of the shares. However, the DRP has taken the DCF method and has held that this was closer to the value arrived by the TPO and is thus not unreasonable as given in para 6.21 of the DRP order on page 26. This shows that the value is similar as determined by both the methods and therefore the stand of the TPO is justified and the adjustment be sustained. 9.4.5 We have heard the rival submissions and perused the materials available on record. The assessee while arriving at the valuation of shares has adopted NAV method in which the revaluation reserve was excluded and accordingly concluded that the value at which the shares have been transferred is within arm's length. The TPO has considered the financials of Stripes SA Pharmaceuticals Pty Ltd, South Africa as of December 2010. The key contentions of the assessee are that the TPO has taken the financials of wrong year and that the revaluation reserve should be excluded for the purpose of arriving at NAV. In this regard the ld AR submitted the definition of "Net Worth" under various Acts including Companies Act 2013 etc., as per which "Net worth" means paid up c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to pharmaceutical business process outsourcing facility in research and development and STAR commodities, generic version of product of re-formulating existing innovative product. The assessee also made a detailed submission on the nature of activity carried through the star facility that this reformulated generic version of the product is produced / manufactured as a prototype and later, all the technical and other data relating to the product is compiled in the form of a dossier and submitted to the regulatory authorities for approval. Further, the assessee admits that this product development activity is a process related activity, the final outcome of which is recorded in a document called Dossier. The said document records the detailed method followed in the manufacture of the product from sourcing of raw material to the final product. The process so developed is sold to the customers by the assessee, who submits the process recorded in the dossier before the regulatory authorities concerned after whose approval they get the right to sell the product in a particular territory. It was also admitted by the assessee that with the sale of the products, the right to manufacture doe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the AO based on the nomenclature used by the assessee for consideration received. Thus, since the granting of such a facility / license to manufacture and sell within a territory, using the process developed by the assessee is what the activity on which the assessee is earning income, the same can by no stretch of imagination be treated as 'manufacture or production of an article or thing and export thereof. Coming to the various decisions relied on by the assessee, the assessee cannot derive any strength from the said decisions since the same deal with the issue of manufacture or production and are not given in the context of determining whether a process can be considered as an 'article or thing'. Coming to the alternative argument put forth by the assessee dossier amounts to providing Information Technology Enabled Services (1TES) the same is also of no avail to the assessee since the said services pertain to software and computer related services and not to other processes. Hence the assessee's claim of deduction u/s 10B of Rs. 11,44,12,969/- in respect of its 'Contract Manufacturing & Research Division' (STAR unit), is disallowed. Accordingly, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the relevant conditions of section 1OB that there must be a production of article or thing and export of such article . or thing and consideration thereof brought into India within the time permissible under the foreign exchange regulations are fulfilled and accordingly allowable. We allow this issue of assessee's appeal." 042. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law were alleged in the relevant assessment year. Thus, respectfully following the order passed by the Co- ordinate Bench of the Tribunal in assessee's own case cited supra, wedirect the Assessing Officer to allow the deduction claimed under section 10B of the Act. Accordingly, ground no.6, raised in assessee's appeal is allowed." 11.1.6 The facts being identical for the year under consideration, respectfully following the above decision of the co-ordinate bench, we hold that the assessee is entitled for deduction under section 10B of the Act in respect of STAR division. 11.2 Disallowance of FCCB Premium 11.2.1 The Assessing Officer noticed that assessee has claimed a sum of Rs. 55,44,94,544/- being 1/5th of the FCCB p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the rival contentions and gone through the facts and circumstances of the case. The learned Counsel for the assessee explained the facts that the assessee company has issued FCCB (listed in Singapore Stock Exchange) to the extent of US$ 40 million. These bonds carry an interest rate of 0.5% p.a. and are redeemable on April 19, 2010 at 136.78 percent of the principal amount. Further, these bonds are convertible into shares by bond holders on or after May 18, 2005 and only at the option of bond holders. The total issue expense relating to the issue of FCCB is USD $ 10,77,926 claimed in equal instalments over a period of 5 years. Further, we find that these bonds may be redeemed only in full at any time on or after 18th April 2008 but before 19th April 2010 with a redemption premium of 6.8% p.a. As on 31 December 2005 the additional amount (including exchange fluctuation) which is payable on redemption was provided for under Debenture Redemption Reserve with a corresponding adjustment to Securities Premium Account . Further, none of the bonds were offered for conversion as on 31st March 2007. Further, the FCCB issue expenses have been allowed as a deduction in the Company's own ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AY 2013-14. 11.3 Disallowance of FCCB issue expenses 11.3.1 The Assessing Officer has disallowed FCCB issue expenses which is included as part of FCCB premium expenses to the tune of Rs. ,69,13,062/-. The assessee submitted before the DRP that the Assessing Officer has erroneously disallowed the issue expenses also while disallowing the FCCB premium amount. The D upheld the disallowance by stating that expenditure towards issue expenses have not been incurred during the assessment year 2010-11 and accordingly cannot be allowed. 11.3.2 The Ld.AR submitted that the issue under consideration is covered in favour of the assessee by the decision of the co-ordinate bench in assessee's own case for A.Y. 2008-09 where it has been held as that of the findings as extracted above. The Ld.AR accordingly prayed for similar direction. 11.3.3 We heard the parties. We notice that the issue of disallowance of FCCB issue expenses have also been considered by the co-ordinate bench in assessee's own case for A.Y. 2008-09 and the relevant part of the decision have been extracted in the earlier part of this order. Respectfully following the same, we hold that the FCCB issue expense is allow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case of PCIT vs Era Infrastructure India Ltd (2022) 141 taxmann.com 289 to submit that the amendment made to section 14A of Finance Act, 2022 is prospective and not applicable in assessee's case for the year under consideration. 11.4.3 We heard the parties and perused the material on record. We notice that the co-ordinate bench in assessee's own case for A.Y. 2008-09 has considered the issue of disallowance under section 14A and held that - 060. We have considered the rival submissions and perused the material available on record. We find that the assessee during the course of assessment proceedings, has raised the following submissions:- i) The assessee has made investment in domestic companies and mutual funds out of the cash generated from its business operations and not from loan funds; ii) The assessee has not incurred any interest or any other expenditure for making the aforesaid investment; iii) The assessee has not earned any exempt income from its equity investments during the year; and iv) The disallowance under section 14A of the Act should not exceed the actual expenditure incurred by the assessee (and debited to Profit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the ld. AR for the assessee. After considering the facts of the case and the various judgements cited supra, we are ofthe opinion that no addition to book profits u/s 115JB could be made on the basis of disallowance u/s 14A read with Rule 8D of the Income Tax Rules, 1962. This legal proposition is supported by the decision of Hon;ble Bombay High Court in case of CIT v/s Bengal Finance and Investments - (ITXA No. 337 of 2013 Bombay High Court), where it was held that computation contemplated under clause (f) of explanation (1) to section 115JB is to be made without resorting to computation as contemplated u/s 14A r.w.r 8D of the Income Tax Rules, 1962. A similar ratio is laid down by special Bench of ITAT,Delhi in the case of DCIT vs. Vireet Investments Pvt Ltd(Supra). We, therefore, respectfully following the ratio laid down by High Courts and Tribunal, direct the AO to delete addition made to book profit computed u/s 115JB, towards disallowances computed u/s 14A of the Income Tax Act, 1961." 064. In view of the above, we deem it appropriate to restore this issue to the file of the Assessing Officer for denovo adjudication in accordance with the directions of the Co- o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... submitted that it had incurred the revenue expenditure to the extent debited to the P&L Account and also incurred a capital expenditure of Rs. 1,05,10,765/- and claimed weighted deduction towards both the amounts. The assessee submitted that it is entitled to claim weighted deduction since the assessee had carried out research and development activities from approved facilities which is certified by the DSIR in Form 3M. The assessee further submitted that the non receipt of required approval was a procedural delay and since the R&D facility is approved, the assessee is entitled for a weighted deduction. The DRP, after considering the submissions of the assessee held that - "9.4 We have considered the facts of the case and the submissions made by the assessee. It is an undisputed fact and also admitted by the assessee that the expenditure approval has not been obtained from the prescribed authority which is a precondition for claiming the specified deduction under section 35(2AB) of the Act. Since the assessee has not fulfilled the condition prescribed in the provisions of section 35(2AB), weighted deduction as claimed by it cannot be allowed. 9.5 However, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uthority to verify the expenditure as has been held by the Hon'ble Karnataka High Court in the case of Tejas Networks Ltd., vs DCIT (2015) 60 taxmann.com 309 and therefore without the certificate from DSIR the assessee can be allowed only 100% of the expenditure incurred. 11.6.5 We heard the parties and perused the materials on record. Before proceeding further, we will look at the relevant provisions of section 35(2AB), Rules and the Guidelines for approval by DSIR of the in-house R&D facility :- Section 35(2AB): (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 one and onehalf times of the expenditure so incurred. Explanation.-For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roved for the purpose of this section by the prescribed authority and engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipment, computers, telecommunication equipment, chemicals or any other article or thing notified in this behalf. It is also proposed that no deduction shall be allowed in respect of expenditure on land and building. It is also proposed that the company shall enter into an agreement of cooperation and audit with the prescribed authority before approval of the research and development facility. The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. " In terms of Sec.35(2AB)(4), the prescribed authority has to submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed. Income Tax Rules, 1962 (Rules) prescribes the procedure for approval of the prescribed authority and the manner in which report has to be prepared by the prescribed authority. The relevant rules in so far as it concerns to deduction u/s.35(2AB) of the Act are p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aration to be given by the Auditor is important and it reads thus: AUDITOR'S CERTIFICATE I have audited the accounts of the in-house R&D Centre of M/s _______________________ located at ___________________ which is approved U/S 35(2AB) by the Prescribed Authority (Secretary, DSIR). I certify that: a) The company has maintained separate accounts for the R&D Centre approved by DSIR U/S 35(2AB). b) The accounts have been satisfactorily maintained. The expenditure certified are also in consonance with DSIR guidelines. c) The firm has extended full co-operation to me in carrying out the audit of the accounts of the R&D Centre. The expenditure of Rs. ------------ reported for the financial year ----------relevant to the assessment year -------------- as detailed out in Appendix II to Annexure IV of DSIR guideline at para Rs. 4' is correct to the best of my knowledge and belief as per the result of the audit of the approved R&D Centre carried out by me. Also R&D capital expenditure is reflected on page ----and revenue expenditure on page ---- in the audited financial statement/annual report It is further certified that the expenditure cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eduction and weighted deduction is discernible from a reading of the entire statutory provisions of Sec.35 of the Act. 11.6.8 In assessee's case, there is no dispute that the assessee has fulfilled all the conditions for the purpose of section 35(2AB). This fact has been accepted by the revenue which is evidenced by the AO's order of assessment where he has allowed deduction towards the impugned amount @ 100% as against the 150% claimed by the assessee. Therefore the issue for consideration is limited to whether the expenditure claimed by the assessee as incurred towards scientific research is eligible for weighted deduction since the assessee's facility from where the expenditure is incurred is approved by DSIR. As already seen, once the assessee submits the details of expenditure as certified by the Director and the Auditor, the DSIR is required to certify the same in Form 3CL certifying the amount eligible for weighted deduction. It is very relevant here to note that there was an amendment with effect from 01.07.2016 to Rule 6(7A)(b) of the Income Tax Rules whereby it has been laid down that the prescribed authority, i.e., DSIR shall quantify the quantum of deduction to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by Rs. 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed." 11.6.9 We also notice that the coordinate bench of the Tribunal in the case of UltraTech Cement Ltd. vs DCIT [2022] 139 taxmann.com 151 (Mumbai - Trib.) has considered a similar issue and held that 112. We have heard the rival contentions and perused the material on record. To understand the controversy, it's important to examine the requirements of section 35(2AB)(1) which reads as under : "(2AB)(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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Rule 6(7A) of the I.T. Rules, that the quantification of weighted deduction u/s 35(2AB) of the I.T. Act has significance. Therefore, we hold that the deduction u/s 35(2AB) of the I.T. Act be granted as claimed by the assessee instead of restricting it to the quantum of claim as mentioned in .Form No. 3CL by the prescribed authority. It is ordered accordingly." 115. As can be noted above, the Tribunal relied on another decision of the same Bench in the case of Mahindra Electric Mobility Ltd. v. Asstt.CIT [ITA No. 641 (Bang.) of 2017, dated 14-9-2018] wherein it was observed as under: "20. From the above discussion it is clear that prior to 1-7-2016 Form 3CL had no legal sanctity and it is only w.e.f 1-7-2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and sec.35(2AB) of the Act are similar except that the deduction u/s.35(2A....