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2026 (4) TMI 44
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....the case are that the Assessee is a limited company engaged in the manufacture and marketing of pharmaceuticals products. For the Asst. year 2018-19 the Assessee filed its Return of income on 28-11-2018 declaring total income of Rs. 6,65,67,500/- under normal provisions and book profit of Rs. 5,25,43,74,080/ under MAT provisions. Assessment order was passed by making following disallowances: 2.1. Disallowance of weighted deduction under section 35(2AB) of the Act on certain R&D related expenses of Rs. 17,60,63,542/-. The Assessee company has in-house Research & Development unit which are approved by the Department of Scientific and Industrial Research [DSIR] and eligible for weighted deduction u/s. 35(2AB) of the Act. The Assessee claimed Rs. 409.95 crores as revenue expenses incurred on scientific research on approved inhouse R&D unit eligible for weighted deduction of u/s. 35(2AB) as against Rs. 392.34 crores certified by the Auditors. All revenue expenditure incurred in the in-house R&D facility being entitled to weighted deduction, accordingly the Assessee claimed all R&D related expenses such as contract labour charges, salary to nontechnical staff, building maintenance, re....
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....ted deduction under section 35(2AB) of the Act and limiting the claim of deduction only to the extent allowable under section 35(1) of the Act in respect of certain R&D expenditure incurred on contract labour charges, salary to nontechnical staff, building maintenance, rent, bank charges, rates & taxes, etc. amounting to INR 8.80.31.771/- without appreciating that the approval of in-house R&D facility by Department of Scientific and Industrial Research (DSIR) is the only condition for claim of deduction under the main provisions of section 35(2AB) of the Act and therefore, any additional requirement including ascertaining quantum of R&D expenses provided under the Rule cannot override the main provision of the Act." 4.2. Grounds of appeal in ITA No.1662/Ahd/2024 (Assessee's appeal for A.Y. 2020-21) "1. Disallowance of weighted deduction of INR 12,43,04,124 under section 35(2AB) of the Act on certain R&D related expenses of INR 24,86,08,248/-: 1.1 The CIT(A) grossly erred in not allowing weighted deduction under section 35(2AB) of the Act and limiting the claim of deduction only to the extent allowable under section 35(1) of the Act in respect of certain R&D exp....
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....o 1-4-2016, the amendment to section 35(2AB)) are not applicable to the same and in terms of unamended provisions of section 35(2AB) of the Act, since we have held above that the prescribed authority was not required in law to quantify the amount of expenditure incurred on in-house research and development facility, such quantification, if any done by the prescribed authority in Form No. 3CL was not required to be taken cognizance of by the Revenue authorities and the assessee is entitled to claim weighted deduction on all expenditure incurred by it, on in-house research & development facility. Therefore, we agree with the contentions of the ld.counsel for the assessee, before us that in the impugned year involved before us, the Revenue has erred in restricting the claim of weighted deduction under section 35(2AB) of the Act to the extent approved by the prescribed authority i.e. DSIR. 6.1. Pursuant to the amendment in Section 35(2AB) by the Finance Act, 2015 w.e.f. 01-04-2016, the Ld AO is not empowered to allow the weighted deduction beyond the amount of expenses certified by the DSIR in Form No.3CL. In this case DSIR had certified the amount of expenditure incurred by the ass....
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....) was justified in holding the additional claim of MEIS receipts as capital in nature and not subjected to taxation u/s. 115JB of the Act,?" (iv) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of or before, the hearing of appeal." 8. Ground No.1 namely additional claim of MEIS receipts as capital in nature, Ld. Senior Counsel submitted that this issue of additional claim of MEIS is covered in favour of the assessee vide order dated 25-11- 2025 in ITA No.436/Ahd/2025 in assessee's own case for the Asst. Year 2021-22 which was also rectified with the typo errors vide in M.A. No. 118/Ahd/2025 dated 25-02-2026. Ld. CIT-DR appearing for the Revenue could not dispute the above facts. 9. We have considered the rival submissions and perused the materials available on record. Co-ordinate Bench of this Tribunal in assessee's own case for the Asst. Year 2021-22 held as follows: "...7. With regard to MEIS, we find that the issue stands adjudicated by the orders of the Co-ordinate Benches of Chennai, Delhi and Mumbai ITAT. Further reliance is being placed on the following judgments of the Hon'ble Apex Court:- a) Shre....
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....n, sought to re-compute book profit under Section 115JB of the Act. We note that the assessee is a public company whose financial statements have been certified by statutory auditors, approved by shareholders in the AGM, and filed with the Registrar of Companies. The Hon'ble Supreme Court in Apollo Tyers (supra) has held that once the accounts are certified by the auditors and approved by shareholders, the AO cannot make adjustments unless there is fraud, misrepresentation, or non-compliance with Schedule VI of the Companies Act. There is no finding in the CIT(A)'s order that the accounts were not in accordance with the Companies Act, apart from the difference in accounting treatment of the subsidy. A mere difference in accounting interpretation cannot be a reason to modify book profits under Section 115JB. Therefore, we hold that the accounts of the assessee were correctly prepared, and the AO's adjustment was beyond his jurisdiction. We allow the Ground number 3 in favor of the assessee." 10.1. Respectfully following the above decisions, we do not find any infirmity in the order passed by the Ld. CIT(A) who upheld the deletion made under section 115JB of the Act. H....
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....giving additional reason. 9. Upon a perusal of this material, we are unable to agree with Mr. Pinto that question 5.1 reproduced above is a substantial question of law. Given the peculiar facts and circumstances and the nature of the investment so also being for commercial expediency, the view taken by the Commissioner and the Tribunal concurrently cannot be termed as perverse. That view being imminently possible in the given facts and circumstances. It does not raise any substantial question of law." 11.1. Respectfully following the above judicial precedent, the ground no.3 raised by the Revenue is devoid of merits and liable to be dismissed. 12. Ground No. 4 namely loss on investment in subsidiary company be considered as capital loss. This issue is also covered against the Revenue by the Judgment of the Karnataka High Court in the case of ACE Designers Ltd -Vs.- Addl. CIT reported in [2020] 120 taxmann.com 321 [Kar] by observing as follows: "5. We have considered the submissions made by learned counsel for the parties and have perused the record. The core issue, which arises for consideration in this appeal is with regard to disallowance of business loss ....
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.... assessee shall be regarded as trading loss. 7. In the backdrop of aforesaid well settled legal position, the facts of the case in hand may be adverted to. From the perusal of the note annexed to the income filed before the assessing officer, it is evident that assessee had set up an establishment in USA during Financial Year 1992-93 for the exclusive purpose of marketing assessee's products and for promoting its business in US and Latin America. It has further been stated in the note that looking to the stringent norms of product liability in US market, the assessee decided to have a separate Wholly Owned Entity in the US having limited liability. The approval for aforesaid purpose was obtained from the Reserve Bank of India. The assessee therefore, invested funds in equity for meeting the revenue expenses of Wholly Owned Subsidiary Company's balance sheet. However, WOS could not perform upto company's expectations and therefore, it was decided to wind up WOS operations in USA. While granting approval for closure of WOS, RBI permitted the company to write off the whole of investment made in WOS and unrealized export receivables. The assessee therefore, made a ....