TaxTMI 
TaxTMI 
2026 (7) TMI 190
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....onsideration, the assessee filed its return of income on 29/11/2014 declaring a total income of INR 1,63,73,480. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, from the financials of the assessee, it was observed that the assessee has carried out in-house Research and Development to develop different kinds of extruders and natural fibres/polymer-based material at its R&D centre at Pennya Industrial Area, Bangalore. It was further observed that the assessee has claimed deduction under section 35(2AB) of the Act to the tune of INR 5,37,80,979. During the assessment proceedings, the assessee was asked to furnish Form 3CL, which was issued by the Ministry of Science and Technology, Department of Scientific and Industrial Research ("DSIR"), and the same was furnished by the assessee. Upon perusal of the Form 3CL, it was observed that the DSIR has approved only an amount of INR 103.25 lakhs. Accordingly, the deduction claimed by the assessee under section 35(2AB) of the Act was restricted to INR 3,78,55,214, and the balance of IN....
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....the record that in order to seek approval from the DSIR, the assessee filed an application in Form 3CK on 11/03/2014. Vide Form 3CM dated 18/07/2014, the DSIR granted approval to the assessee for the purpose of section 35(2AB) of the Act from 27/11/2013 to 31/03/2016 in respect of the R&D facility of the assessee at Peenya, Bangalore. Since approval was granted under Form 3CM from 27/11/2013, the deduction claimed under section 35(2AB) of the Act was allowed only in respect of revenue and capital expenditure incurred after 27/11/2013. On the other hand, as per the assessee, the entire R&D expenditure incurred during the year is eligible for deduction under section 35(2AB) of the Act, irrespective of the date from which the approval was granted by the DSIR. 8. From perusal of the Guidelines for Approval in Form 3CM of In-House R&D Centres issued by the DSIR, we find that in clause 5, it has been provided that the approval to the in-house R&D centres having valid recognition by DSIR is considered from 1st April of the year in which the application is made in Form 3CK. In the present case, as noted above, the assessee made the said application in Form 3CK to the DSIR on 11/03/2014.....
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.... rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of "R & D" facility has to be allowed for weighted deduction as provided by section 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R & D facility in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the Legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 8. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee." ....
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.... Form No.3CK."; "(5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3 CM: Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application. "(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely:- (a) The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed. authority shall submit its report in relation to the approval of inhouse Research and Development facility in Form No. 3CL to the Director General (Income Tax Exemptions) within sixty days of its granting approval; (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall be furnished to the Secretary, Department of....
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....incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no m....