TMI Blog2023 (8) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [ 2013 (3) TMI 539 - GUJARAT HIGH COURT] held that the benefit u/s 35(2AB) is also available in respect of expenditure on clinical trials outside the approved in-house R D facility. Thus assessee is entitled to claim weighted deduction on expenditure u/s 35(2AB) of the Act in respect of the clinical trial expenses incurred outside the approved in-house R D facility. As regards, the balance expenditure as per the assessee the same was in relation to electricity expenses, which are directly related to the R D centre at the Goa unit. Thus, we are of the view that the said expenditure is also eligible for weighted deduction u/s 35(2AB) of the Act in view of the aforesaid findings. Thus AO is directed to grant weighted deduction on the revenue expenditure u/s 35(2AB) as assessee furnish a copy of the order of approval in Form No. 3CM given by DSIR during the assessment proceedings - Decided in favour of assessee. - Shri B.R. Baskaran, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Vijay Mehta For the Revenue : Smt. Mahita Nair ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining a copy of Form No. 3CL, and upon receipt of same it shall be submitted. The assessee further submitted that the submission of Form No. 3CL is not a prerequisite condition for granting deduction section 35(2AB) of the Act once the in-house facilities are duly approved by the prescribed authority. The Assessing Officer ( AO ) vide order dated 29/12/2016 passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that under section 35(2AB) of the Act, the expenditure as approved by the DSIR in the certificate given by them in Form No. 3CL is to be granted weighted deduction. Thus, it is not for either the assessee or the assessing authority to decide on the expenditure which will be entitled to weighted deduction section 35(2AB) of the Act. The AO further held that in the present case, since the assessee has not furnished the copy of Form No. 3CL, the claim for weighted deduction section 35(2AB) of the Act in respect of expenditure incurred on in-house research facility is not allowable. However, in case the assessee furnishes Form No. 3CL subsequently, the assessment order shall be rectified to the extent that the weighted deduction sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee though furnished the copy of the order of approval in Form No. 3CM given by DSIR during the assessment proceedings. Subsequently, the DSIR issued Form No. 3CL and accordingly, the AO passed an order under section 154 of the Act allowing weighted deduction section 35(2AB) of the Act only to the extent of expenditure of Rs. 1800.89 lakh (i.e. capital expenditure of Rs. 38.12 lakh and Revenue expenditure to the extent of Rs. 1762.77 lakh) appearing in Form No. 3CL. In respect of the remaining revenue expenditure of Rs. 212.85 lakh not approved by DSIR, the claim of the assessee under section 35(2AB) of the Act was disallowed. 7. Before proceeding further, it is pertinent to analyse certain provisions of the Act and the Rules, which are relevant for the adjudication of the issue raised in this appeal. Section 35(2AB)(1) of the Act, as it stood in the relevant year, reads as under:- (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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion audited means the audit of accounts by an accountant, as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961. (d) Assets acquired in respect of development of scientific research and development facility shall not be disposed off without the approval of the Secretary, Department of Scientific and Industrial Research 9. Firstly, the basis on which the disallowance of Rs. 212.85 lakh under section 35(2AB) of the Act was made by the AO and upheld by the learned CIT(A) was that the said expenditure was not approved by the DSIR for weighted deduction under section 35(2AB) of the Act. It is pertinent to note that there was an amendment with effect from 01/07/2016 to Rule 6(7A)(b) of the Rules, whereby it has been laid down that the prescribed authority, i.e., DSIR shall quantify the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under section 35(2AB) of the Act in Part-B of Form No. 3CL. Prior to the aforesaid amendment, the provisions of Rule 6(7A)(b) of the Rules merely provided that the prescribed authority shall submit its report in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for deduction under section 35(2AB) of the Act, the first step was the recognition of the facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. It was also held that once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of the Assessing Officer is to look into and allow the expenditure incurred on in-house R D facility as weighted deduction under section 35(2AB) of the Act. As noted above, in the present case, the prescribed authority has already passed an order granting the approval in Form No. 3CM. We find that in various other decisions relied upon by the learned AR, the coordinate benches of the Tribunal rendered similar findings that prior to the aforesaid amendment from 01/07/2016 once the facility is approved by DSIR, the assessee is entitled to weighted deduction under section 35(2AB) of the Act and there is no requirement that expenses also need to be approved by the DSIR in Form No. 3CL. Therefore, since the aforesaid amendment is not applicable to the assessment year under consideration, we are of the view that the AO erred in restricting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) is completely misplaced. In this regard, the following observations of the Hon ble Supreme Court in CIT v/s Sun Engineering Private Limited, [1992] 198 ITR 297 (SC), become relevant: It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the Courts must carefully try to ascertain the true principle laid down by the decision of the Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by the Court, to support their proceedings. 13. The learned CIT(A) further held that the expenditure of Rs. 212.85 lakhs is not in respect of the in-house research and development facility as approved by the prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal observed that the term 'in-house' used in section 35(2AB) of the Act must be viewed in the context of which it has been used. If by utilizing the staff or resources of an organization, research is conducted within the organization rather than through utilization of external use of resources or staff, it can be stated to be an in-house research. On such basis, the Tribunal rejected the Revenue's contention that merely because an expenditure which was not incurred in the in-house facility cannot be discarded for the weighted deduction under section 35(2AB) of the Act. Learned counsel for the Revenue, however, strongly relied on the certificate issued by the Prescribed Authority, which segregated the expenditure in two parts, that incurred in in-house facility and that incurred outside. 14. In our opinion, the Tribunal committed no error. Section 35(2AB) of the Act provides for deduction to a company engaged in business of bio-technology or the business of manufacture or production of any article or thing notified by the Board towards expenditure of scientific research development facility approved by the prescribed authority. Such deduction at the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority and filing of an application for patent necessarily shall have to be outside the in-house research facility. Thus the restricted meaning suggested by the Revenue would completely make the explanation quite meaningless. For the scientific research in relation to drugs and pharmaceuticals made for its own peculiar requirements, the Legislature appears to have added such an explanation. 17. In the case Dy. CIT v. Mastek Ltd. [2012] 210 Taxman 432/25 taxmann.com 133 (Guj.) and connected matters, a Division Bench of this Court had touched on the aspect of what can be termed as scientific research. In the context, certain observations made by the Bench may be of some relevance. 25. It can thus be seen that the term scientific research in the context of the deduction allowable under section 35(1) of the Act would include wide variety of activities. It can also be appreciated that every scientific research need not necessarily result into the ultimate goal with which it may have been undertaken. Often times in the field of research and invention, the efforts undertaken may or may not yield fruitful results. What is to be ascertained is whether any scientific research w ..... 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