AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 1623
X X X X Extracts X X X X
X X X X Extracts X X X X
....mal provisions of the Act and their book profit of Rs. 4,97,18,42,525/- under the provisions of 115 JB of the Act. During the course of assessment, learned Assessing Officer noticed that the assessee had incurred an expenditure of Rs. 74,07,80,093/- towards Research & Development (R&D) and claimed weighted deduction under section 35(2AB) of the Act @ 200% of Rs. 1,47,30,26,932/-. 3. On a perusal of Form 3CL issued by the DSIR, it was noticed that the DSIR has not certified an amount of Rs. 4,66,80,700/- claimed towards 'rent, electricity and maintenance 'and since according to section 35(2AB) of the Act only such amount as certified by DSIR is eligible for weighted deduction, learned Assessing Officer allowed only the certified amounts for weighted deduction and disallowed the noncertified expenditure to the tune of Rs. 4,66,80,700/- under section 35(2AB) of the Act, namely, @ 200% to the tune of Rs. 4,66,80,700/-. Learned Assessing Officer further disallowed a sum of Rs. 1,69,108/- by invoking section 14A of the Act read with Rule 8D of the Income Tax Rules 1962 ("the Rules"). 4. Assessment under section 143(3) of the Act was completed by order dated 30/12/2017 determining t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ough the provisions under section 35(2AB) of the Act and also Rule 6 of the Income Tax Rules, 1962 ("the Rules") under the caption "prescribed authority for expenditure on scientific research" and to sub Rule 7A thereof. Basing on this, he submits that the approval of expenditure incurred on in-house R&D facility under 35(2AB) of the Act shall be subject to the conditions therein. He also invited our attention to Form 3CL under which a report has to be submitted by the prescribed authority to the Income tax authorities specified under section 35(2AB) of the Act. Basing on these provisions and Form, he argued that not only the R&D facility has to be approved by the prescribed authority, but also the expenditure incurred to be qualified for weighted deduction under section 35(2AB) of the Act has to be approved. He submits that otherwise it would not be possible for the Income tax authorities to deal with the expenditure which is allowable under section 35 (1), 35(2AB) and 37 of the Act separately. His submission is that the expenditure genuinely incurred, but not qualified under section 35(2AB) of the Act being certified by the prescribed authority, would be eligible for deduction un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hether it is the expenditure approved by the prescribed authority under Rule 6(7A) of the Rules and reflected in Form 3CL, or it shall include the expenditure incurred by the assessee other than the one on scientific research on inhouse R&D facility? At this juncture, he further submitted that in the case of CIT Vs. Vegetable Products Ltd., (1973) 88 ITR 192, the Hon'ble Apex Court held that the duty of the court is to read the section, understand its language and give effect to the same; that if the language is plain the consequences of giving effect to it are not factors to be taken into account in interpreting the provision; that it is for the legislature to step in and remove the absurdity if any; and that if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted. Basing on this, he submitted that it is only when the language of the provision is ambiguous or capable of various interpretations than one, then only the adoption of interpretation which favours the assessee, more particularly in cases of imposition of penalty, will occasion. According to him, the decision of the Hyderabad Bench of the Tribun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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 R&D facility as approved by the prescribed authority, then, there shall be allowed a deduction of [a sum equal to [two] times of 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, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).] 2. No deduction shall be allowed in respect of the expenditure mentioned in clause(I0 under any other provision of this Act. 3. No company shall be entitled for deduction under clause (I) unless it enters into an agreement with the prescribed authority for co-operation in such R&D facility and for audit of the accounts maintained for that facility. 4. The prescribed authority shall submit its report in rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lly and a copy thereof shall furnished to the Secretary, Department of Scientific and Industrial Research by 31st day of October of 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 Explanation below sub-section (2) of section 288 of the Income tax, 1961; (d) Assets acquired in respect of development of scientific research development facility shall not be disposed of without the approval of Secretary, Department of Scientific and Industrial Research. 13. Under sub Rule 5A of the Rules, the prescribed authority shall, if he was satisfied that the conditions provided in Rule 6 and in Rule 35(2AB) of the Act are fulfilled, pass an order in writing in Form 3CM. This order passed in Form 5A is considered to be the approval of the in-house R&D facility. However, under Rule 6(7A) (b) of the Rules the prescribed authority is under obligation to submit the report in relation to the approval in Form 3CL to the Director General (Income tax exemptions) within 60 days of its granting approval. Further under Rule 6 (7A) (c), the company shall maintain a separate account f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....obligation to verify whether certain conditions are satisfied before approving the expenditure. Rule 6 speaks of the expenditure and its approval and Form 3CL is only a Form of communication. Section 35(2AB) of the Act deals with the quantum of deduction that is allowable in respect of expenditure on scientific research and in respect of the business of biotechnology. 17. The essence of section 35(2AB) of the Act read with Rule 6 (5A) of the Rules is approval of the in-house R&D facility, whereas 35(2AB) of the Act read with Rule 6(7A) of the Rules is in relation to approval of the expenditure incurred on in-house R&D facility by a company, for weighted deduction. If the approval of the prescribed authority has nothing to do with the expenditure, but its role is confined only in respect of the in-house R&D facility, then the exercise of the prescribed authority under Rule 6(7A) of the Rules would be a redundant exercise because, if we go by the contention of the assessee, when once the in-house R&D facilities approved, all the expenditure, irrespective of the fact whether or not it is reflected in Form 3CL, would be qualified for weighted deduction. Rule 6 (5A) cannot be read to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(10th amendment) Rules, 2016 w.e.f. 01/07/2016, vide item No. 9, the report to be submitted by the prescribed authority to the Director General (Income tax exemptions) under section 35(2AB) of the Act, shall contain the total cost of in-house research facility. By way of amendment for the purpose of electronic submission, the Form is made in a detailed manner for incorporation of the total cost of in-house research facility. There are no path breaking changes either in Rule 6(7A) of the Rules or in Form 3CL by way of the IT (10th Amendment) Rules, 2010, so as to impact the powers and duties of the prescribed authority or the right, liability or disability of the companies incurring expenditure on scientific research on in-house R&D facility. 20. When the entire exercise of section 35(2AB) of the Act read with Rule 6 particularly sub sections 5A and 7A thereof is in respect of the expenditure on scientific research which is allowable with weighted deduction, and the purpose of the prescribed authority is to have the technical competence to approve the in-house R&D facility and approval of the expenditure incurred in such in-house R&D facility, while looking at sub Rule 5A and 7A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ticle 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 R&D facility as approved by the prescribed authority, then, there shall be allowed a deduction of [a sum equal to [two] times of 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, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).] 2. No deduction shall be allowed in respect of the expenditure mentioned in clause(I0 under any other provision of this Act. 3. No company shall be entitled for deduction under clause (I) unless it enters into an agreement with the prescribed authority for cooperation in such R&D facility and for audit of the accounts maintained for that facility. 4. The prescribed authority shall submit its report in relation to the approval of the said facility to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee is able to prove that any amount of expenditure in their in-house R&D facilities was omitted to be considered by the DSIR for weighted deduction the same may be allowed as a deduction u/s. 35/37 of the Act. With this observation we dismiss the appeal of the assessee on this issue. 22. The fact remains that the view taken by the Hyderabad Bench of the Tribunal in the case of Electronics Corpn. of India (supra) is applicable to the facts of the case, but this decision was not brought to the notice of Pune Bench of the Tribunal when this matter was considered in Cumins India Ltd., (supra). We are, therefore, not in agreement with the submissions on behalf of the assessee that prior to 01/07/2016 no power to quantify the expenditure incurred on in-house R&D facility was available with DSIR, after approval of the facility. As stated supra, Rule 6(7A) of the Rules was there in the statute book even prior to 01/07/2016 and earlier also it was reading that approval of expenditure incurred on in-house R&D facility by a company was subject to certain conditions. There has ever been a further requirement under Rule 6(7A)(c) of the Rules that the company shall maintain a separat....