TMI Blog2014 (10) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and sale of pesticides, bio-fertilisers and organic manures – Whether non-availability of the approval in the prescribed form for the relevant assessment year could disentitle the assessee of deduction u/s. 35(2AB) or not - Held that:- Following the decision in ACIT Versus Meco Instruments P. Ltd. [2010 (8) TMI 484 - ITAT, MUMBAI] - Expenses were incurred by assessee towards R & D activity as AO himself has allowed 100% of the amount as deduction - once the R & D facility is approved, the entire expenditure incurred for R & D facility has to be allowed towards weighted deduction u/s. 35(2AB) of the Act - assessee's R & D facility having been approved by the prescribed authority and there being no dispute to the fact that assessee has incurred the expenditure towards R & D activities, the deduction claimed u/s. 35(2AB) by the assessee cannot be denied merely on the ground that prescribed authority has not submitted report in Form 3CL - when no show-cause notice has been issued to assessee for rejection of its application, assessee's application for approval of expenditure should be deemed to have been approved by the prescribed authority – thus, the AO is directed to all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was seriously ill during the relevant point of time due to heart problem was not able to attend the office regularly. Ultimately the MD had to undergo medical treatment including open heart surgery during the period January to June 2013 and resumed official work in the month of July 2013 that too for a few hours in a day. Due to sheer inadvertence the MD lapsed to notice the order of CIT(A) which had remained unattended and this could only be noticed in the month of February 2013 when the new CA enquired about the status of appeal in ITAT for A.Y. 2009-10. Thus, it was submitted, being made aware of non-filing of appeal, assessee took immediate steps for filing of the appeal before ITAT. Thus, it was submitted by the learned AR, the appeal could not be filed within the time prescribed not due to deliberate or mala fide intention but for genuine reasons arising out of illness of the MD. 3. The learned AR submitted, the delay being due to bonafide reasons it should be condoned. In this context he relied upon the following decisions: a) Collector, Land Acquisition v. Mst. Katiji Ors. (167 ITR 471) (SC) b) Venkatadri Traders Ltd. vs. CIT (248 ITR 681) (Mad) 4. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and admit appeal of assessee for hearing on merit. 7. The assessee raised four grounds. Ground No. 4 being a general ground is not required to be adjudicated. The learned AR at the outset expressed his intention not to press ground No. 1. Hence ground No. 1 is dismissed as not pressed. 8. In ground No. 2, assessee has raised the issue of disallowance of deduction claimed u/s. 35(2AB) of the Act. Briefly the facts relating to the aforesaid issue are, assessee is a company engaged in the business of manufacturing and sale of pesticides, bio-fertilisers and organic manures. For the A.Y. under consideration, assessee filed its return of income on 28.1.2010 declaring total income of ₹ 7,86,92,796 after claiming deduction u/s. 80JJA of ₹ 5,55,96,201. During the scrutiny assessment proceedings, AO noticed that during the year assessee has incurred R D expenditure to the tune of ₹ 10,55,59,759 which was claimed as deduction u/s. 35(2) and u/s. 35(2AB) of the Act. The AO noted that as per computation of assessee, R D revenue and capital expenditure of ₹ 10,55,59,759 includes deduction of ₹ 72,75,245 towards 150% weighted deduction u/s. 35(2AB) on rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at when assessee's R D facility has been approved by DSIR and assessee has performed its part of obligation under the statute by applying in Form 3CK as provided u/s. 35(2AB) of the Act read with Rule 6 of the IT Rules, only because DSIR has not forwarded its report in Form No. 3CL, assessee's claim of deduction u/s. 35(2AB) cannot be disallowed when there is no dispute that assessee has incurred expenditure towards scientific research. In this context, the learned AR relied upon the following decisions: a) ACIT v. Meco Instruments P. Ltd., ITA No. 4246/Mum/2009. b) ACIT v. Meco Instruments P. Ltd., ITA Nos. 4931, 4804, 4805 4806/Mum/2009. c) Aarti Industries v. Addl. CIT and vice versa in ITA Nos. 8387 ad 8554/Mum/2004. d) Claris Life Sciences Ltd. vs. ACIT (112 ITD 307) (Ahd) e) CIT vs. Claris Life Sciences Ltd. (326 ITR 251) (Guj) f) CIT vs. Sandan Vikas (India) Ltd. (335 ITR 117) (Del) 11. The learned DR on the other hand, submitted that there is no agreement between assessee and DSIR in terms of sec. 35(2AB) clause (3) and there is no approval in Form 3CL, hence, deduction claimed by assessee u/s. 35(2AB) cannot be allowed. 12. We have consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. We have considered the rival submissions and perused the record of the case. It is an admitted position that In-house R D Unit had been duly approved by the Government of India, Ministry of Science and Technology, Department of Scientific Industrial Research vide its letter dated 3.7.1997. It is also fact that as per terms and conditions of recognition, the same was not meant for tax exemption which is evident from Sl.No.9 of the terms and conditions, which reads as under:- The recognition is not meant to tax exemptions; quantum of tax concessions, development rebates and others, if any, will be governed by the tax laws in operation from time to time. All such matters should be taken up directly with the concerned tax authorities. This recognition was renewed time and again by various orders, noted earlier, in the arguments of ld Counsel for the assessee and, thus, the approval was available up to 31.3.2011 vide latest order dated 29.4.2008. For the assessment year 2005-06, the AO raised objection for the first time in course of assessment proceedings regarding approval being not in the prescribed form. Therefore, the assessee filed an application in the prescribed fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules prescribes the authority for expenditure on scientific research and as per Rules 6(1B) for the purposes of sub-section (2AB) of section 35, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research. The sub-Rule (4) requires the company to furnish the application in Form No. 3CK. As per sub-Rule (5A), if the prescribed authority is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, then pass an order in writing in Form No. 3CM. However, as per the proviso to sub-rule (5A), if the prescribed authority is not so satisfied it is to grant reasonable opportunity to the assessee company before rejecting its application. Sub-Rule (7A) prescribes the certain conditions subject to which approval is to be granted. A close reading of the section r.w. Rule 6 would reveal that nowhere any time has been prescribed within which the application is required to be filed by the assessee company. Further, nowhere, any condition has been prescribed regarding cut off date from which the approval could be made effective. Therefore, once the assessee company is granted approval it will apply til ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company is required to submit brief summary of the achievements of the R D unit to the Department of Science and Industrial Research every year which includes paper published, patents obtained and processes developed, new products introduced, awards and prizes received and other achievements. Further, as per clause 8, commercial exploitation of the know-how/process developed by in-house R D Unit was to be solely governed by the licensing policies in operation from time to time and the decision of the licensing authorities in this regard is considered to be final. Thus, stringent conditions have been imposed by the prescribed authority itself though the said approval was not meant for tax exemption but in substance, there was not much difference between the objects sought to be achieved by these approvals. 6.4 Further, in any view of the matter, at best it could be said that it was only a procedural defect and from the various decisions, noted in the arguments of ld Counsel for the assessee, it is clear that merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribed procedure, the exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s. 80JJA of the Act. In this context the assessee also submitted separate Profit and Loss A/c. for organic manure and inorganic products. On examining the Profit and Loss A/c. submitted by assessee, AO noticed that assessee has apportioned direct expenses between both the segments on actual basis, whereas general expenditure has been apportioned between both the segments on turnover basis. AO noted that while total turnover during the year was ₹ 65,58,87,447, the turnover from organic manure sale was ₹ 14,95,68,465 (22.8%) and from non-organic products was ₹ 50,63,18,982 (77.2%). AO observed that R D expenditure has been debited in the accounts of non-organic products without apportioning the same between organic and nonorganic segments. Accordingly, AO proposed to apportion R D expenditure between both the segments on turnover basis similar to other general expenses. Therefore, applying the ratio of 22.8% and 77.2%, AO allocated expenditure of ₹ 2,35,14,706 to organic manure segment and ₹ 7,96,19,971 to non-organic segment. As a result of such allocation, the deduction claimed u/s. 80JJA was restricted to ₹ 3,20,81,495 resulting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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