TaxTMI 
TaxTMI 
2024 (2) TMI 755
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.... furnished in Form 3CLA by the Petitioner certifying the expenditure incurred in respect of the R&D facilities of the Petitioner for the FY 2018-19 (relevant to assessment year 2019- 20); and d. Pass such other orders which this Hon'ble Court may deem fit and proper on the facts and in the circumstances of the case." 2. The petitioner is essentially aggrieved by the weighted deductions claimed by it under Section 35(2AB) of the Income Tax Act, 1961[Act] in respect of expenditure incurred on the creation and establishment of an in-house Research and Development facility [R & D facility], being restricted to the period - 27 February 2019 to 31 March 2020. 3. The writ petitioner contends that the stipulation of weighted deductions being eligible only from 27 February 2019 [being the date on which the research facility was approved], is wholly illegal and violative of the plain language and intent underlying Section 35(2AB) of the Act. As is evident from the reliefs claimed, the petitioner seeks deductions being granted on the entire expenditure made on the establishment and creation of the R & D facility for Financial Year 2018-19 and thus taking into account all expend....
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....o be submitted on 22 February 2019. The facility was ultimately accorded recognition on 29 March 2019, albeit, for the period 27 February 2019 to 31 March 2021. On 25 November 2019, the respondent is stated to have issued Form 3CM subject to the qualification that the approval would be applicable for the period 27 February 2019 to 31 March 2020. It was in the aforesaid backdrop that the petitioner appears to have been called upon to submit an amended Auditors Certificate setting out the expenditure that may have been incurred in that period. This is evident from a reading of the communication dated 28 February 2020 issued by the respondent to the petitioner. 8. The petitioner sought modification of the aforesaid stipulations as appearing in the ultimate recognition and approval granted by the respondent vide its communication dated 08 May 2020. However, on 11 May 2020, the respondent addressed a communication to the following effect: - "From: N. K. Gupta <[email protected]> Sent: 11 May 2020 11:26 To: Dubey Vachaspati Cc: Regupathy Muralidharan; C N Ananda Kumar; Paramasivam Ganesh Subject: Re: 3CL documents FY 2018-19 - M/s Na....
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.... 9. The provisions nowhere suggest or imply that the research and development facility 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 facility, which presupposes 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 the facility is approved, the entire expenditure so incurred on development of the research and development facility has to be allowed for weigh....
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....: - "35. Expenditure on scientific research xxxx xxxx xxxx (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 one-half times of the expenditure so incurred: 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 drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtainin....
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....proval under sub-section (2AA) of section 35 shall be made by a sponsor in Form No. 3CG. Explanation : For the purposes of this rule "sponsor" means a person who makes an application in Form No. 3CG. (4) The application required to be furnished by a company under sub-section (2AB) of section 35 shall be in Form No. 3CK. (5) The head of the National Laboratory or the University or the Indian Institute of Technology or the Principal Scientific Adviser to the Government of India shall, if he is satisfied that it is feasible to carry out the scientific research programme then, subject to other conditions prescribed in this rule and section 35(2AA) of the Act, pass an order in writing in Form No. 3CH: Provided that a reasonable opportunity of being heard shall be granted to the sponsor before rejecting an application: Provided further that an order under this rule shall be passed within two months of the receipt of the application under sub-rule (1A): Provided also that the Principal Scientific Adviser to the Government of India may authorise an officer who is not below the rank of a Deputy Secretary to issue such order, after the sc....
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....person, as the case may be, shall maintain a separate account for each approved programme; which shall be audited annually and a copy thereof shall be furnished to the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Director General of Income-tax having jurisdiction over the sponsor by 31st day of October of each succeeding year; (f) Assets acquired by the prescribed authority for executing the approved programme shall not be disposed of without the approval of the Principal Chief Commissioner of Income- tax or Chief Commissioner of Income-tax or Principal Director General of Income-tax or Director General of Income-tax having jurisdiction over the sponsor; (g) On completion of the approved programme, a completion certificate along with a copy of the report on the research activities carried out and salient features of the result obtained and its further application for commercial exploitation shall be jointly submitted by the sponsor and the National Laboratory, University, Indian Institute of Technology or specified person to the Principal Chief Commissioner of Income-tax or Chief Comm....
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.... (1) of section 139 of the Act for furnishing the return of income, for each succeeding year. Explanation : For the purposes of this sub- rule the expression "audited" means the audit of accounts by an accountant, as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961; (d) Assets acquired in respect of development of scientific research and development facility shall not be disposed of without the approval of the Secretary, Department of Scientific and Industrial Research. (8). For the purposes of this rule, the Principal Director General of Income-tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data, and shall also be responsible for the day-to-day administration in relation to furnishing the information in the manner so specified." 14. As is evident from Rule 6(4) of the Rules, an applicant seeking to avail the benefit of weighted deductions is obliged to furnish an application in Form 3CK. Form 3CK invites the DSIR to enter into and engage in a collaborative arrangement with the R & D facility that is created by an assessee. The agreement is thu....
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....ermanent Account Number (PAN) of the company. 3. Name and designation of the Principal Officer of the company 4. Nature of business/activity of the company (1) Business of biotechnology (II) Manufacture/production of any eligible article or thing under sub-section (2AB) of section 35 of the Act. (Please specify) Part A 1. Annual production of the eligible products of the company during the past three years. 2. Proposed objectives of scientific research contemplated by the company. 3. Whether the nature of the business is related to the proposed objectives of the scientific research contemplated by the company. 4. Details of the nature of existing in-house Research and Development facilities specifying whether the in-house Research and Development facility is adequate for carrying out scientific research. 5. Registration number, date and validity of recognition granted by Department of Scientific and Industrial Research to the in-house Research and Development centre of the company. 6. Whether agreement for co-operation and Research and Development facility and for audit of the account....
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....ue nature on the new centers. v. In case of firms, not having DSIR recognized R&D centre, but which have applied for approval u/s 35 (2AB) of an in-house R&D center on which they had made capital investments on R&D of more than Rs. one crore, excluding expenditure on land and building, in the financial year preceding the year in which the firm applied to the prescribed authority for the approval - capital expenditure on the R&D facility for which approval has been requested (excluding capital expenditure on land and building) incurred from the commencement of said preceding year, provided the company claims such capital expenditure in their I.T. return for concerned assessment year and the firm/R&D centre fulfils other conditions of approval, and provided the centre was subsequently recognized by DSIR. vi. In case of firms, having R&D centres already recognized by DSIR and who have applied for approval of an in-house R&D centre u/s 35 (2AB) and who have made capital investment on R&D of more than Rs. one crore, excluding capital expenditure on land and buildings, on such centre in the financial year preceding the year in which the firm applied to prescribed author....
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....uthority in Form 3CL. The approval to the facility is granted in terms comprised in Form 3CM. While the approval of the indigenous R & D facility may be a precondition for further consideration of a claim for deductions under Section 35(2AB), the eligible expenditure incurred in the creation of such a facility clearly does not appear to be restricted to a date anterior to the grant of approval under Rule 6(5A). Approval under Rule 6(5A) and the certification of expenditure incurred in accordance with Rule 6(7A) are preparatory steps and a pre-condition for the ultimate consideration of deductions under Section 35(2AB). 20. Interpreting Section 35(2AB) and Rule 6 in the manner suggested by the respondent would also appear to be wholly illogical when one bears in mind the indubitable fact that Section 35(2AB) is aimed at according deductions in respect of expenditure already incurred. This is manifest from the provision using the expression "expenditure so incurred." The provision thus contemplates R & D facilities which have been duly created and expenditure having been incurred before approval or recognition is conferred upon that facility by the prescribed authority. If the exp....