AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (5) TMI 1649
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.... "Ex-Parte Order: 1) The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Center. Delhi ("NFAC") ("the CIT(A)") erred in fact and in law in passing the order ex-parte. 2) The learned CIT(A) has erred in law and in fact in passing order under section 250 of the Act without granting opportunity of virtual hearing as provided in Clause 12(3) of Faceless Appeal Scheme 2021. Without prejudice to the above: Weighted deduction of science research expenditure on in-house R&D facility 3) The learned CIT(A) has erred in law and in fact in restricting the claim of weighted deduction u/s 35(2AB) of the Act of the expenditure not quantified by the Department of Scientific and industrial research. Government of India ("DSIR") in Form 3CL despite of the fact that requirement of quantification in Form 3CL under Rule 6(7A)(b) of the Rules was introduced by the Income Tax (tenth Amendment) Rules, 2016 with effect from 01.07.2016 and hence, it is not applicable in AY 2015-16. 4) The learned CIT(A) has erred in law and in fact in making the impugned disallowance by not fully considering the submission filed by the Appellant.....
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....the rate of 15% as Plant and Machinery despite the fact that the learned CIT(A) has allowed additional depreciation on the same. 13) The learned CIT(A) has erred in law and in fact in not appreciating the fact that the Hon'ble 1TAT in the Appellant's own case for AY 2011-12 on identical issue has allowed depreciation on electrical items as electrical installation at the rate of 15%. Your appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal." Ground Nos. 3 to 5 : Research and Development expenses under Section 35(2AB) of the Act 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing polymer resins and chemicals. During the course of assessment, the Assessing Officer observed that assessee had claimed an amount of Rs. 2,06,38,415/- as deduction under Section 35(2AB) of the Act. On perusal of the certificate issued by DSIR dated 13.11.2014 and also Form 3CL issued by the Secretary, DSIR, the Assessing Officer observed that DSIR had approved revenue expenditure of Rs. 44,33,000/- and capital expenditure of Rs. 35,17,000/- for the impugned ass....
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....efore us, the ld. counsel contended that the issue is covered in favour of the assessee by the decision of the Co-ordinate Bench of the ITAT vide ITA Nos. 1417/Ahd/2016 in the case of Sun Pharmaceuticals Industries vs. Pr. CIT dated 17.05.2019. The ld. counsel has also placed reliance on the decision of Co-ordinate Bench of the ITAT vide ITA Nos. 5295/Mum/2017 & 5390/Mum/2017 in the case of M/s. Crompton Greaves Ltd. vs. ACIT dated 27.09.2019. The ld. counsel has also placed reliance on the decision of Torrent Pharmaceutical Ltd (2009) 28 CCH 781 (Ahmedabad). The ld. counsel submitted that the requirement for quantification of expenditure for claiming deduction was made w.e.f. 1.7.2016 as per the sub-rule (7A) of Rule 6 of Income Tax Rule, 1961. On the other hand, the ld. Departmental Representative has supported the order of lower authorities. 7. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated supra in this order, during the course of appellate proceedings before us, the ld. counsel has referred the aforesaid judicial pronouncement including the decision of ITAT Ahmedabad adjudicated in favour of the assessee. With the ....
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....f quantum of expenditure, by the prescribed authority, is the prerequisite for deduction, the provisions of section 35(2AB) requires approval for Units and not approval for the quantum of expenditure. For ready reference, section 35(2)(AB) reads as under: Expenditure on scientific research 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 inhouse 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 incurre....
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....ing of the intimation of the approval of the unit; that Form No. 3CL is a mere report for intimation of approval of R & D facility. In this regard, as rightly pointed out, such aspect stands confirmed by subrule (7A) of Rule 6 of Income Tax Rules, as within subsisting (now amended w.e.f. 01.07.2016), to provide for quantification of expenditure as well. The Finance Act, 2015 as amended to sub section (3) of section 35 w.e.f. 01.04.2016, providing for furnishing of reports in the manner to be prescribed. It is, thus, w.e.f. 01.04.2016 that the provision has been made for approval of quantum of expenditure, for the first time. 11. Further still, in Pune ITAT decision in the case of Cummins India Ltd. v. Dy. CIT (2018) 96 Taxmann.com 576 (Pune-Trib.), which is a decision directly on the issue at hand, it has been held, inter alia, to the fact that though the Rules stipulate the filing of audit report before the prescribed authority by availing the deduction u/s. 35(2AB) of the Act. The provision of the Act prescribed or approved to be granted by the prescribed authority vis-à-vis the expenditure from year to year; that the amendment was brought in by the Income Tax ame....
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....the unit and the certification of the expenditure, where the actual expenditure, as in the case of the assessee is verified by the Statutory Auditor and certified by the Independent Auditor and Tax Auditor. 15. The assessee is found correct in contending that the ld. CIT(A) has observed that the extent of the expenditure was never verified by the A.O. Thus, according to the assessee it goes to confirms that the A.O. disallowed the claim without due application of mind. This contention of the assessee is correct, as evident from the assessment order itself, wherein the ground for the disallowance was the non-approval of the expenditure claimed by the DSIR. 16. On behalf of the assessee, another contention has been raised, that the ld. CIT(A) is wrong in observing that during the remand proceedings, the assessee has not objected to the action of the A.O. in making the disallowance u/s. 35(2AB). This, it has been emphasized, that the assessee had always objected to the disallowance before the A.O. as well as the ld. CIT(A). The attention in this regard has been drawn to the grounds taken by the assessee and the submissions raised by the assessee before the ld. CIT(A)....
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....next issue for consideration is whether the view taken by the ld. Assessing Officer was a legally tenable view or could it be inferred that ld. Assessing Officer had taken an incorrect view in the instant facts and therefore the order passed was erroneous and prejudicial to the interest of the Revenue. We observe that the in the case of Provimi Animal Nutrition India Pvt. Ltd. vs. PCIT Bangalore [2021] 124 taxman.com 73 (Bangalore Trib), the ITAT held that prior 01-07-2016, Form 3CL granting approval by prescribed authority in relation to quantification weighted deduction u/s. 35(2AB) of the Act had no legal sanctity and it was only w.e.f. 01-07-2016 that quantification of weighted deduction u/s. 35(2AB) of the Act is significant. We observe that in the case of Sun Pharmaceutical vs. PCIT [2017] 77 taxman.com 202/162ITD 484 Ahmedabad ITAT held that where assessee had already obtained approval of its in house research and development facility in form 3CM, Commissioner could not revise assessment framed by Assessing Officer allowing deduction u/s. 35(2AB) of the Act merely on the ground of non-submission of report of prescribed authority under form 3CL. Further, we observe that the M....
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....e assessee's claim for payment of commission of Rs. 39,87,500/- and added the same to the total income of the assessee. 12. In appeal, Ld. CIT(A) confirmed the addition by placing reliance on the order of his predecessor for A.Y. 2013-14. 13. The assessee is in appeal before us against the aforesaid order passed by the Ld. CIT(A), confirming the addition in the hands of the assessee. 14. Before us, the Counsel for the assessee submitted that the issue of allowability of commission has been dealt by ITAT Ahmedabad in assessee's own case for A.Y. 2013-14 in ITA No. 28/Ahd/2017, wherein the ITAT deleted the disallowance under Section 40A(2)(b) of the Act, with respect to similar commission expenses. Copy of the order passed by the ITAT has been placed on record before us. 15. Further, the Counsel for the assessee submitted that even for A.Y. 2014- 15 the ITAT Ahmedabad in assessee's own case in ITA No. 2917/Ahd/2017 vide order dated 23.02.2022 deleted similar addition on account of commission payment to sister concerns. Copy of ITAT order for A.Y. 2014-15 has been placed before us for our records. Accordingly, the Counsel for the assessee submitted that since the issue is ....
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....of income. It is noticed that Assessing Officer has not made any further verification, investigation and examination from the parties to whom the sales were made through the commission agents to disprove the facts reported by the assessee in its submission. The Assessing Officer has not demonstrated any material or information gathered to disprove the genuineness of the expenditure incurred on commission payment of Rs. 6 lacs, therefore, we consider the decision of the ld. CIT(A) to sustain the disallowance is not justified. Therefore, we do not find any merit in the decision of ld. CIT(A) and the appeal of the assessee is allowed." 18. Further, ITAT Ahmedabad in assessee's own case for A.Y. 2014-15 in ITA No. 2917/Ahd/2017, allowed the issue in favour of the assessee with the following observations: "3. The brief facts of the case are that the assessee company carries on the business of manufacturing of polymer resins and chemicals. During the year, the assessee paid commission to four parties- Prakash Udeshi HUF (Rs. 3,24,000/-), Ami Udeshi (Rs. 3,24,000/-), Ranajit Sen HUF (Rs. 2,64,000/-) and Sushanta Kumar Pramanik HUF (Rs. 1,48,500/-). The Ld. AO during the course....
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.... upheld by the first appellate authority in the preceding year. The assessee drew our attention to para 10 at page no. 8 of ITAT Ahmedabad order of assessee's own case for the immediately preceding year A.Y. 2013-14. The ld. Departmental Representative placed reliance on the observations of the ld. CIT(A) while confirming the addition for excess commission payments u/s. 40A(2)(b) of the Act. 5. We have heard rival contentions and perused the order of ITAT in assessee's own case for immediately preceding year i.e. A.Y. 2013-14. We note that in the immediately preceding year ITAT Ahmedabad deleted the disallowance of commission u/s. 40A(2)(b) of Act the with the following observations. "10. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer has disallowed the expenditure incurred on payment of commission to persons specified u/s. 40A(2)(b) stating that assessee has failed to establish the genuineness of the expenditure. On perusal of the material on record, it is observed that during the course of assessment, the assessee has explained the specific services rendered by the parties to whom the commission wa....
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....ppeal before us against the aforesaid order passed by Ld. CIT(A). 23. Before us, the Counsel for the assessee submitted that the assessee had installed new Plant & Machinery during the impugned assessment year. The Counsel for the assessee submitted that these electronic installations are integral part of Plant and Machinery and cannot operate independently. The Counsel for the assessee placed reliance on the case of Gujarat Chemical Port Terminal Co. Ltd. vs. DCIT in ITA No. 394/Srt/2018, wherein vide order dated 05.08.2022, the Ahmedabad Tribunal allowed depreciation on electrical installation / fittings under the block of "Plant and Machinery" @ 15%. The Counsel for the assessee submitted that the case of the assessee is directly covered by the Ahmedabad Tribunal in favour of the assessee on this issue. 24. In response, Ld. DR placed reliance on the observations made by the Ld. CIT(A) in the appellate order. 25. It would be useful to reproduce the relevant extract of the order passed by Ahmedabad Tribunal in the case of Gujarat Chemical Port Terminal Co. Ltd. vs. DCIT in ITA No. 394/Srt/2018, vide order dated 05.08.2022 wherein Ahmedabad Tribunal made the following obse....
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....s raised the following additional grounds of appeal: "Ex-Parte Order: 1) The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Center, Delhi ("NFAC") ("the CIT(A)") erred in fact and in law in passing the order ex-parte. 2) The learned CIT(A) has erred in law and in fact in passing order under section 250 of the Act without granting opportunity of virtual hearing as provided in Clause 12(3) of Faceless Appeal Scheme 2021. Without prejudice to the above: Weighted deduction of science research expenditure on in-house R&D facility 3) The learned CIT(A) has erred in law and in fact in restricting the claim of weighted deduction u/s 35(2AB) of the Act quantified by the Department of Scientific and industrial research, Government of India ("DS1R") in Form 3CL despite of the fact that requirement of quantification in Form 3CL under Rule 6(7A)(b) of the Rules was introduced by the Income Tax (tenth Amendment) Rules, 2016 with effect from 01.07.2016 and hence, it is applicable from AY 2017-18 onwards only. 4) The learned CIT(A) has erred in law and in fact in making the impugned disallowance by not fully con....