TaxTMI 
TaxTMI 
2025 (1) TMI 902
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....aw and on facts in enhancing the disallowance of claim made u/s 35(2AB) of the R & D expenditure for the reason that the appellant is not eligible to claim deduction u/s 35(2AB) for the amount which is in excess of the amount approved by DSIR. 3. Without prejudice to the above, after having denied weighted deduction claimed u/s 35 (2AB) in respect of the said expenditure on scientific research the learned DRP and the AO erred in law and on facts, in not allowing the deduction of the same under the provisions of Section 35(1) (iv) Income Tax Act, 1961 at least to the extent of One hundred percent. 4. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacture and sale of air conditioners, radiators, heat exchangers parts and components thereof which are used in cars and SUVs and in providing IT enabled design engineering services in the automotive industry segment. It filed its return of income on 30.11.2012 declaring total income of Rs. 9,58,15,960/-. Since the assessee had entered into certain international transactions reported in Form No.3CEB, the matter was referred to the Transfer Pricing Officer (TPO) who made certain upw....
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....e R&D expenditure claimed by the assessee of Rs. 4.8 crores, DSIR has approved expenditure of only Rs. 4.74 crores. Therefore, the assessee has claimed an excess of Rs. 0.6 crores related to its claim of revenue R&D expenditure which is not eligible for deduction. The DRP further observed that out of capital R&D expenditure claimed of Rs. 5.1 crores, DSIR has approved the expenditure of only Rs. 21 lakhs. Therefore, the assessee has claimed an excess amount of Rs. 4.89 crores related to its claim of capital R&D expenditure. Since the assessee has claimed deduction u/s 35(2AB) of the Act @ 200% on this excess amount of Rs. 4.89 crores, the amount to be disallowed out of the claim u/s 35(2AB) works out to Rs. 9.78 crores. Since the Assessing Officer has disallowed only an amount of Rs. 3.38 crore, therefore, the DSIR issued a show cause notice asking the assessee to explain as to why the balance amount of Rs. 6.46 crore should not be enhanced. 8. The assessee submitted that the expenditure incurred by it outside the in-house R&D facility is also allowable as deduction u/s 35(2AB). It was further submitted that the Assessing Officer has only allowed the expenditure incurred within ....
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....t shown as capital WIP will be allowed in the year when the said capital WIP is transferred as an intangible asset in the Balance Sheet. 10. The Assessing Officer in the final order passed on 19.01.2017 however, made disallowance of weighted deduction u/s 35(2AB) to the extent of Rs. 3,38,82,341/-. 11. Aggrieved with such order of the Assessing Officer / TPO / DRP, the assessee is in appeal before the Tribunal. 12. The Ld. Counsel for the assessee submitted that the Assessing Officer in the final assessment order has not enhanced the income. He submitted that till the amendment to Rules 6 and 7A from 1st July 2016 vide Income Tax Rules, 2016 (10th Amendment) the DSIR had to only approve the R&D facility and there was no requirement for DSIR to quantify the expenditure. He submitted that the claim of the assessee was in respect of expenses on R&D incurred in the period prior to the introduction of the said Rules 6 and 7A. 13. Referring to the decision of the Pune Bench of the Tribunal in assessee's own case for assessment year 2011-12 he submitted that under similar facts and circumstances the Tribunal has held that the stipulation for quantifying the eligible R&D expend....
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....on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in assessee's own case for assessment year 2011-12. The Tribunal vide ITA No.624/PUN/2018, order dated 31.08.2021 has decided the issue in favour of the assessee by observing as under: "3. Succinctly, the facts of the case are that the assessee is engaged in manufacturing automobile accessories particularly Heat exchangers, i.e. Radiators, Evaporators, Condensers and Automotive air conditioning systems. The return was filed declaring total income of Rs. 3.56 crore and odd. One of the reported international transactions was Payment of Research and development expenses to three Associated enterprises (AEs) situated in the USA, Japan and Germany. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of the international transactions. The TPO accepted the transaction of Payment of R&D expenses at ALP. In the computation of total income, the assessee had claimed weighted deduction u/s. 35(2AB) of the Act amounting to Rs. 26,73,42,263/- on Research and developm....
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....ed in CWIP Development Cost 5,47,24,293 5,47,24,293 - - Tangible Investments 6,800 - 6,800 - Salary-Design 1,18,45,866 - 1,18,45,866 - Travel Expenses 2,05,632 - 2,05,632 - Sub-Total (B) 6,67,82,591 5,47,24,293 1,20,58,298 13,35,65,182 Expenses Debited to P&L A/c. (Sub-total C) 3,41,34,804 74,95,427 2,66,39,378 3,41,34,804 Grand Total 15,07,38,534 9,61,80,237 5,45,58,297 26,73,42,263 5. It can be seen from the above Table that the assessee categorized R&D expenses under three broad heads: `Considered in FA Additions' amounting to Rs. 4,98,21,138/- (Sub-total A); `Considered in CWIP' amounting to Rs. 6,67,82,591/- (Sub-total B); and `Expenses Debited to P&L A/c' amounting to Rs. 3,41,34,804/- (Sub-total C). The three heads have further been bifurcated into `Outside India' and `Remaining' inside India. Total of three expenses incurred outside India comes to Rs. 9,61,80,237. As the aggregate Sub-total C was claimed as revenue expenditure in Profit and Loss account, the assessee claimed deduction u/s 35(2AB) at two times of the aggreg....
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....de letter issued by DSIR on 07-12-2010. Going with the mandate of clause (i) of para 6 of the Guidelines as extracted above, the approval will have to be considered from Ist April of 2010, which is the previous year relevant to the assessment year under consideration. Clause (iii) providing for the approval to be considered from the date of recognition, applies only in case of companies not having DSIR recognized in-house R&D. Since the assessee has a valid approval granted by the DSIR for R&D Centre, it is covered within the four walls of clause (i) and there is no scope for applying clause (iii) and accordingly making it eligible for deduction only from the date of recognition. Accordingly, it is held that the approval to the assessee's in-house R&D centre is to be considered from Ist April of 2010 under the above clause (i). The view point of the ld. CIT(A) considering the expenditure only from the date of the approval, namely, 07-12-2010, in our considered opinion is not in accordance with the relevant rules. This portion of the impugned order is thus vacated. 8. The ld. CIT(A) restricted the claim of weighted deduction to the amount of Rs. 1,32,39,000/-, being, the am....
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....respect of in-house R&D facility qualified for the deduction - whether or not approved by the prescribed authority. Only the existence of approval and incurring of the expenditure were relevant considerations in the pre-amended era and not the amount quantified by the prescribed authority. The new stipulations came to be introduced w.e.f. 01-07-2016. As the assessment year under consideration is 2011-12 and the approval was granted by DSIR on 07-12-2010, the amended sub-clause (b) of Rule 6 (7A) coming into vogue even after the passing of the assessment order can have no applicability. We, therefore, hold that the ld. CIT(A) was not justified in restricting the amount of weighted deduction to the quantification done by the prescribed authority. The impugned order is reversed on this score. 11. The ld. CIT(A) also held that the capital expenditure in the nature of Intangibles incurred by the assessee could not qualify for the weighted deduction. For this purpose, he relied on the `Guidelines for approval in Form 3CM of in-house R&D Centres recognized by DSIR' dated May 2014. Para 4 of such Guidelines contains `Conditions subject to which approval is given'. Clause (xi) of p....
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....er query, the ld. AR submitted that the assessee's approved R&D facility was engaged in designing and developing of Engine cooling systems and HVAC systems for vehicles. During the designing and development phase, engine coolant and HVAC systems are required to be put in Performance Evaluation Testing in variant weather conditions artificially created, for which sophisticated technology and set up is required that is not available in India. It was for such Performance Evaluation Test under variant weather conditions artificially created that the assessee availed services from its three AEs situated abroad. It was pointed out that the three AEs conducted the needful tests for which the assessee incurred total cost of Rs. 9.61 crore tabulated under Column "Outside India", which was accepted by the TPO at ALP. 15. From the above discussion, it is abundantly clear that the total sum of Rs. 9.61 crore incurred by the assessee outside India has not been incurred on in-house R&D facility as approved by the prescribed authority. What to talk of in-house R&D facility of the assessee approved by the prescribed authority, here is a case in which the assessee incurred these costs for ....