TaxTMI 
TaxTMI 
2025 (1) TMI 1179
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....Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18. Since common issues are involved in the appeals filed by Revenue, CO and appeal filed by the assessee, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order. 2. First we take up ITA No.127/PUN/2024 for assessment year 2014-15 as the lead case. Facts of the case, in brief, are that the assessee is engaged in the business of manufacturing of Automobile Ancillaries particularly Heat Exchangers i.e. Radiators, Evaporators, Condensers and Automotive Air Conditioning system. It filed its return of income on 29.11.2014 declaring total income of Rs. 9,95,44,850/-. The Assessing Officer completed the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on 23.12.2016 determining the total income at Rs. 19,31,29,820/- wherein he made the disallowance of Rs. 8,31,07,474/- being the weighted deduction u/s 35(2AB) of the Act and Rs. 1,04,77,500/- being the Product Development expenses treating the same as Capital Expenditure as against Revenue expenditure claimed by the assessee. The Assessing Officer while making the disallowance u/s 35(....
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....are neither of the assessee nor approved by the prescribed authority, there can be no question of granting any weighted deduction on the expenses incurred outside India. To sum up, it is held that the assessee is entitled to weighted deduction u/s 35(2AB) on total amount of expenditure incurred in India amounting to Rs. 5,45,58,297/-. Resultantly, no weighted deduction is admissible in respect of expenditure incurred outside India amounting to Rs. 9,61,80,237/-. 16. At this juncture, it is pertinent to note the mandate of section 35 with the caption Expenditure on scientific research Clause (iv) of section 35(1) provides for deduction of expenditure on scientific nature "in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2)." Sub-section (2) of section 35, in turn, provides through sub-clause (ia) that for the purposes of clause (iv) of sub-section (1): 'in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred in any previous year shall be deducted....
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.... 35(2AB) revenue R&D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself, total of capital R&D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act." UNQUOTE" It is seen from the above discussion in the honourable ITAT Pune's order that the facts are somewhat similar here. Respectfully following the above decision, it is accordingly held that the product development expenses of Rs. 4,15,53,737 spent outside India is not eligible for weighted deduction u/s 35(2AB). However it is allowed as a deduction u/s 35(1)(iv) as capital expenditure incurred on scientific purpose. Appeal is partly allowed on this ground." 6. So far as the expenditure incurred by the assessee of Rs. 1,04,77,500/- on Product Development expenses treating the same as capital is concerned, the Ld. CIT(A) also allowed the same by observing as under: "3.3 I have carefully considered the submission of the appellant in light of the facts of the case. In this case, it is seen that the Hon'ble ITAT, Pune vide its order ITA No. 624/PUN/2018 dated 17.05.2022 in appellant's own case for AY 2011-12 h....
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....ure of capital expenditure but is revenue expenditure. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue." 9. In the light of legal position discussed above, having regard to the facts of the case that the expenditure was incurred only up-gradation of existing products, we are of the considered opinion that the expenditure is not in the nature of capital but revenue expenditure. Accordingly, we direct the Assessing Officer to allow the expenditure as revenue nature. Accordingly, this ground of appeal no.8 filed by the assessee stands allowed UNQUOTE" The facts are somewhat similar this year's expenses of Rs 1,39,70,000 spent on product testing, inspection and validation. In view of the above discussion, respectively following the decision of the Hon'ble ITAT, Pune, appeal on this ground is allowed." 7. Aggrieved with such order of the Ld. CIT(A) giving part relief, the assessee is in appeal before the Tribunal by raising the following grounds of appeal: Being aggrieved by the order passed u/s 250 of the Income Tax Act 1961 (the Act) by the learned Commissioner of Income Tax A....
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....e products developed and hence the expenses incurred were for a capital asset and therefore, capital in nature. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs. 1,04,77,500/- on product development expenses as revenue expense by relying upon the decisions of Hon'ble ITAT in assessee's own case for AY 2011-12, without appreciating that the said decision has not beers accepted by the Department and an appeal has been filed before the Hon'ble Bombay High Court. 5. The appellant craves leave to add, amend, or alter any ground(s) of appeal at the time of hearing before the Hon'ble Tribunal. 9. So far as ground of appeal No.1 by the Revenue challenging the order of the Ld. CIT(A) in allowing the capital expenditure outside India on R&D u/s 35(1)(iv) is concerned, we find the same stands covered in favour of the assessee by the Tribunal in assessee's own case for assessment year 2011-12 wherein the Tribunal has observed as under: "3. Succinctly, the facts of the case are that the assessee is engaged in manufacturing automobile accessories particularly Heat exchangers, i.e. Radiat....
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....sessee before the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. The AO proceeded with allowing the weighted deduction on the basis of a Table submitted by the assessee, which has been extracted in para 5.1 of his order, reading as under : Particulars Amount Outside India Remaining Claim u/s. 35(2AB) Considered in FA additions - - - - Capitalised Development Cost 4,48,35,186 3,39,60,518 1,08,74,668 - Tangible Investments-Additions 42,94,251 - 42,94,251 - Manpower Cost 6,91,701 - - - Sub Total (A) 4,98,21,138 3,39,60,518 1,58,60,621 9,96,42,277 Considered 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 9,61,8....
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....s not having DSIR recognized in-house R&D Centre, approval is considered from the date of recognition." 7. The remaining 3 points given as - (vi) to (vi) under the Policy approval - apply only in case of firms. The assessee is a company which is governed by first three clauses of para 6 of the Policy for approval. Clause (i) clearly states that approval to the in-house R&D centres having valid recognition by DSIR are considered from Ist April of the year in which application is made in Form 3CK. The assessee in the instant case filed application on 15-07-2010 whose copy is available at page 26 to 66 of the paper book. Pursuant to the assessee's application, it was accorded recognition vide 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 ....
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....rity shall submit its report in relation to the approval of in-house Research and Development facility in Form No.3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval." 10. As per the pre-existing clause (b), the prescribed authority was supposed to submit only its report in relation to the approval of in-house R&D facility to the Director General (Income-tax Exemptions). The stipulation of quantifying the eligible expenditure by the competent authority for the purposes of weighted deduction u/s. 35(2AB) was not there. The only requirement was to submit the report in relation to the approval of in-house R&D facility. Any amount of expenditure incurred in 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) ....
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....the weighted deduction, inter alia, that an eligible company incurs any expenditure on scientific research (other than cost of land or building) on in-house research and development facility as approved by the prescribed authority. The key words in the provision are incurring of expenditure on in-house R&D facility as approved by the prescribed authority. Unless a particular R&D facility is approved by the prescribed authority, no weighted deduction can follow. On a pertinent query, the ld. AR admitted that the prescribed authority approved the in-house R&D unit of the assessee situated at "Gat No.626/1/2 and 622/1/0, 26 Milestone, Pune-Nasik Highway, Village Kuruli, Tal : Khed, District Pune". On a further 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 Te....
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....e deduction in the year of such incurring. Unlike sub-section (2AB), sub-section (1) does not require any specific approval from the prescribed authority for this purpose. Further, there is no stipulation that the expenditure should be incurred in India or outside or in-house R&D facility or otherwise, save and except as provided in other clauses of sub-section (1) of section 35. However, the amount of deduction u/s. 35(1) is equal to the amount of capital expenditure on scientific research. 17. Coming back to the amount of expenditure incurred by the assessee outside India amounting to Rs. 9,61,80,237/-, we find that the expenditure of revenue nature, namely Rs. 74,95,427/- was claimed by the assessee as revenue expenditure and accordingly allowed also. It is only the remaining capital expenditure of Rs. 8,86,84,811/- [Rs.3,39,60,518/- being sub-total (A) and Rs. 5,47,24,293/- being sub-total (B)] that qualifies for deduction u/s. 35(1)(iv). We order accordingly. 18. The ld. DR took strong exception to the claim of the ld. AR for granting deduction of the capital expenditure on scientific research and development incurred outside India u/s. 35(1)(iv). He submitte....
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....the Ld. CIT(A) on this issue. Accordingly, the grounds raised by the Revenue are dismissed. 12. Now, coming to the appeal filed by the assessee is concerned, the Ld. Counsel for the assessee fairly conceded that the issue stands decided against the assessee by the decision of the Tribunal. We, therefore, dismiss the grounds raised by the assessee. ITA No.96/PUN/2024 (AY 2015-16) 13. The grounds raised by the Revenue are as under: 1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in holding that the expenditure incurred by the assessee of Rs. 4,09,65,000/- on product development was incurred only for up-gradation of existing products without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting patent for the products developed. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs. 1,09,05,000/- on product development expenses as revenue expense without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting ....
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....1,32,51,191/- be upheld. 17. After hearing both the sides, we find the first ground of the CO has already been decided against the assessee which was fairly conceded by the Ld. AR for the assessee. In view of the above submission of the Ld. Counsel for the assessee, the first ground of the CO is dismissed. 18. So far as the second ground and the additional ground are concerned, the Ld. Counsel for the assessee at the outset submitted that this issue was raised before the Ld. CIT(A). However, the Ld. CIT(A) has given a concluding self contrary finding that the grounds raised by the assessee are dismissed. He submitted that the facts and figures are already on record and the Tribunal in assessee's own case for assessment year 2011-12 has already decided the issue in assessee's favour and in assessment year 2014-15 also the Ld. CIT(A) had allowed such claim of the assessee. He accordingly submitted that this alternate claim should be allowed. 19. After hearing both the sides, the additional ground of objection raised by the assessee is admitted for adjudication. 20. The Ld. Counsel for the assessee filed the following written submissions: Learned CIT(A) has confir....
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.... Being aggrieved by the order passed by the learned CIT(A) National Faceless Appeal Centre the appellant viz. Mable Anand Thermal Systems Private Limited (previously named Mahle Behr India Private Ltd.) submits following grounds which are without prejudice to each other for your due and sympathetic consideration: On the facts & circumstances of the case and in law, 1. The learned CIT(A) erred in confirming disallowance of claim for weighted deduction amounting to Rs. 23,89,05,598/- in respect of expenditure incurred by the appellant in the relevant previous year on scientific research undertaken by the appellant in its duly recognised in house research and development (R & D) facility u/s 35(2AB) of the Income Tax Act, 1961 (the Act). 2. The learned CIT(A) failed to appreciate that the said claim of the appellant u/s 35 (2AB) was made after duly complying with and in conformity with the relevant provisions of the Act including the submission of requisite information regarding the R & D expenditure in the prescribed forms and non receipt of the report from Department of Scientific and Industrial Research (DSIR) quantifying in Form 3 CL the said expen....