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Maruti Suzuki India Ltd. Versus Union of India & ANR

Entitlement to deduction u/s 35 (2AB) - expenditure incurred for its R&D Centre at Rohtak - approval was granted in 2015 - assessee claim the deduction since inception i.e. AY 2011-12 - Held that:- Both the R&D Centres, at Gurgaon and Rohtak have been granted recognition and the entire R&D expenditure was certified for AY 2011-12, but in the certification dated 9th March, 2015 only the Gurgaon R&D Centre found a mention. The Petitioner merely sought addition of the Rohtak R&D Centre in the said .....

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any expenditure incurred by a party on its R&D facility except, insofar as it relates to land and building is liable to be allowed to be claimed as deduction (twice the amount of expenditure). A perusal of the scheme of the Act especially Sections 35 (2AB), 35A and 35AB reveals in no uncertain terms, that the purpose behind these provisions is to provide impetus for research, development of new technologies, obtaining patent rights, copyrights and know-how. - In the present case, it could b .....

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tion of the expenditure incurred by it. Under such circumstances, an isolated error in an application cannot result in the entire benefit itself being refused to the Petitioner resulting in it being deprived of the deduction as permissible under Section 35 (2AB). - Thus this Court holds that the Petitioner is entitled to deduction under Section 35 (2AB) of the Act for the expenditure in respect of its Rohtak R&D Centre as per the provisions of Section 35 (2AB) for AYs 2011-12, 2012-13 and 20 .....

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J. 1. The Petitioner-Maruti Suzuki India Ltd. is a leading automobile company in India. It has two Research & Development Centres ( R&D Centres ), one at Gurgaon and one at Rohtak, Haryana. The question that arises in this writ petition is - Whether the Petitioner is entitled to deduction under Section 35 (2AB) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) in respect of the expenditure incurred by it for its R&D Centre at Rohtak for the Assessment Year ( AY ) 201 .....

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there shall be allowed a deduction of a sum equal to two times of the expenditure so incurred. Following proviso shall be inserted to clause (1) of sub-section (2AB) of section 35 by the Finance Act, 2016, w.e.f. 1-4-2018: Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of A .....

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t of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for cooperation in such research and development facility and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. (4) The prescribed authority shall submit its report in relation to the approval .....

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is incurred after the 31st day of March, 2008. 3. Section 35 (2AB) provides for deduction of a sum equal to two times of the expenditure incurred for scientific research (not being expenditure in the nature of cost of any land or building) on in-house R&D facilities as approved by the Prescribed Authority. The purpose behind this provision is obviously to encourage the establishment of R&D facilities in the country and also to encourage innovation and investment on innovation. Facts in .....

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ould be seeking a formal approval for this facility under Section 35 (2AB) of the Act. The letter reads as under: Dear Sir, The R&D Unit of the company situated at Palam- Gurgaon Road, Gurgaon, Haryana-122015 has been approved under Section 35(2AB) of the Income Tax Act by your organization till 31/03/2015. We wish to inform you that our company is working on setting up another Research & Development facility at IMT-Rohtak. A brief write up on the project plan and current status is enclo .....

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&D expenses with the DSIR claiming that an expenditure of ₹ 395 crores has been incurred for AY 2011-12. Though the subject line of this application mentioned the Gurgaon Centre, the Auditor's report accompanying this application gave the break-up of the expenditure incurred for both the Gurgaon and Rohtak R&D Centres separately. This was followed up with a formal application dated 30th March, 2012 seeking recognition of the Rohtak R&D Centre accompanied with the requisite .....

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est Facility' had become operational from November, 2013. In the said application, the Petitioner, inter alia, provided the following details of the Rohtak R&D Centre: (i) the lay out plan of the R&D Centres along with the photographs; (ii) break-up of the indigenous R&D equipments; (iii) imported R&D equipments and the details thereof; (iv) particulars of R&D projects which were under progress. This was followed up with a further application on 21st February, 2014 giving .....

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i)Palam- Gurgaon Road, Gurgaon and fresh recognition to the in-house R&D unit at (ii) Plot No. 1, Sector 33-B and 33-C, IMT Rohtak from 25.02.2014 by the Department of Scientific and Industrial research. The recognition is valid upto 31.03.2015. Terms and Conditions pertaining to this recognition are given overleaf. 3. This letter is issued in lieu of this Ministry s letter No. F.No. TU/IV-RD/1224/2010 dated, 29.03.2010 which has been withdrawn and cancelled. 4. Kindly acknowledge the receip .....

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5 for AY 2011-12 in respect of the entire R&D expenditure of ₹ 391.17 Crores, incurred by the Petitioner. This certification, though certifying the entire R&D expenditure of the Petitioner for AY 2011-12, also gave reference of the Gurgaon R&D Centre. This error could have occurred as the subject line of the Petitioner's application dated 31st October, 2011 merely mentioned the Gurgaon R&D Centre and not the Rohtak Centre, though the Auditor's report attached therew .....

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In this letter, the Petitioner relied upon two judgments namely Commissioner of Income Tax v. Sandan Vikas (India) Ltd., [2011] 335 ITR 117 (Del) (hereafter Sandan Vikas ) passed by the Division Bench of this Court, which followed the Gujarat High Court's decision in CIT v. Claris Lifesciences Ltd., [2010] 326 ITR 251 (Guj.) (hereafter Claris Lifesciences ). 11. On the basis of both these judgements, the Petitioner claimed that since the R&D expenditure was incurred by it in the financi .....

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N OF REPORT IN FORM 3CL UNDER SECTION 35 (2AB) OF IT ACT 1961' reads as under: iv. In case of firms having signed agreement of cooperation u/s. 35(2AB) with the Prescribed Authority for one or more R&D centers approved with DSIR which implies that they have been maintaining separate accounts for R&D:- the R&D Centre newly setup by such firms may be approved from the year in which investments on these centers of capital and revenue nature commenced or after the agreement of cooper .....

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that the Auditor's report for the AY ended 31st March, 2011 had contained the exact particulars of the expenditure incurred on the Rohtak R&D Centre. This stand of the Petitioner was not accepted by DSIR. Thus, it issued a Corrigendum dated 7th May, 2015 thereby amending and modifying the said Form 3CL dated 9th March, 2015, whereby the amount of R&D expenditure eligible for deduction u/s 35 (2AB) of the Act, relevant to AY 2011-12, was reduced by the said amount of ₹ 124.78 Cr .....

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led to deduction under section 35(2AB) of the Act in respect of the capital expenditure of ₹ 12478.85 lakhs incurred on the Rohtak research unit during the financial year ended 31.03.2011. (c) for such further and other reliefs as this Hon 'ble Court may consider appropriate, in the circumstances of the case. Notice was issued in the present petition on 28th September, 2015. 14. Thereafter, on 20th November, 2015, the Dispute Resolution Panel (DRP) which was seized of the dispute in th .....

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s under: DRP has examined the issue. It is noted that Form 3CL is signed by Scientist G for and on behalf of DSIR. In preceding AY, then DRP has taken a view that certificate signed by Scientist G shall be valid for claiming deduction u/s 35(2AB). In present case, expenses pertaining to Gurgaon facility are to the tune of ₹ 27032.58 lacs, whereas remaining expenses to the tune of ₹ 12478.85 lacs pertain to Rohtak facility which is not approved during the period under consideration. H .....

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s to Section 35(2AB) of the Income Tax Act, 1961..... 16. Pursuant to the directions of the DRP, the AO passed an assessment order dated 31st December, 2015, denying any deduction to the Petitioner for the AY 2011-2012, in respect of its Rohtak R&D Centre. The Petitioner has filed an appeal to the Appellant Tribunal against the said assessment order which remains pending. Assessment Year 2012-13 17. On 31st October 2012, the Petitioner submitted an application with the DSIR for certification .....

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r did not receive any response to its request for certification. On 15th March, 2016 (wrongly dated as 15th March, 2015), the Petitioner again requested for issuance of Form 3CL for certification of R&D expenditure for AY 2012-13, but this was completely disregarded by DSIR. Another request dated 23rd January, 2017 met the same fate and the DSIR did not issue Form 3CL, until then, in respect of either of the R&D Centres for the AY 2012-13. Thus, in the draft Assessment Order dated 30th J .....

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c mention of both R&D Centres in the documents filed therewith. Appendix II to Annexure IV to this application has a specific Note which reads as follows: Note: The claim includes expenditure of ₹ 222,91,65,384 on the new R&D center of the Company under construction at Rohtak; Haryana for which the Company has already filed application on 30.03.2012 with DSIR for approval of such center. 20. On 6th December, 2016, the Petitioner sought issuance of Form 3CL from the DSIR for the exp .....

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n the amended writ petition: (a) for a Writ of Certiorari or any other Writ, setting aside and quashing the impugned Corrigendum dated 07.05.2015 (Annexure P-14 hereto) (b) for a declaration that the Petitioner is entitled to deduction under section 35(2AB) of the Act in respect of the capital expenditure of ₹ 12478.85 lakhs incurred on the Rohtak research unit during the financial year ended 31.03.2011. (bi) For a Writ of Mandamus, or a Writ in the nature of Mandamus, ordering and directi .....

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denying, disallowing or adding back the deduction claimed by the Petitioner under Section 35(2AB) of the Income-tax Act. (biii) For a Writ of Certiorari or a Writ in the nature of Certiorari, setting aside and quashing the disallowance of the deduction under Section 35(2AB) claimed by the Petitioner in respect of its Gurgaon and Rohtak units for Asst. Years 2012-13 and2013-14 in the assessment orders passed by the A.O (Annexures P-20 and P-22 hereto). (c) for such further and other reliefs as t .....

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as, since, certified the R&D expenditure incurred on the Gurgaon R&D Centre, the relief prayed for with respect to the said Centre is infructuous and is not being gone into in this petition. Petitioner's Submissions 23. Mr. S. Ganesh, learned Senior Counsel for the Petitioner submits that since inception, the Petitioner has kept the DSIR in the loop about the R&D Centre at Rohtak. In fact, in the application dated 31st October, 2011, though the subject line of the cover letter on .....

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s already submitted an information letter to DSIR dated 30.03.2011 on the setting up of this new R&D Centre at Rohtak. . 24. Thus, the non-mentioning of the Rohtak R&D Centre in the cover letter 31st October, 2011 could at best be termed as a clerical error. According to Mr. Ganesh, the certification dated 9th March, 2015 had certified the entire R&D expenses for both the Centres and the Petitioner had merely requested for addition of the Rohtak R&D Centre in the said certificati .....

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ount as deduction under Section 35 (2AB) of the Act, the financial impact for the Petitioner is to the tune of ₹ 250 Crores. Mr. Ganesh submits that the DSIR having issued the Form 3CL dated 9th March, 2015 for the Rohtak Centre, the Corrigendum dated 7th May, 2015 reducing the amount of R&D expenditure is per se contrary to Section 35 (2AB). Moreover, according to Mr.Ganesh, the purpose of approval under Section 35 (2AB) of the Act is not merely to provide deduction qua expenditure in .....

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h the Gurgaon and the Rohtak R&D Centres as per Section 35 (2AB) of the Act. The effect of the non-certification by the DSIR is evident from the draft Assessment Orders which have failed to take into consideration the R&D expenses that have been incurred by the Petitioner. Respondent's submissions 26. Mr. Gaurav Sarin, learned counsel for the DSIR (Respondent No.1) submits that the Petitioner has deliberately deceived the DSIR and is not entitled to the benefit of Section 35 (2AB). M .....

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nditure of ₹ 97,84,41,981 on the new R&D center of the company under construction at Rohtak; Haryana for which the Company has already filed application on 30.03.2012 with DSIR for approval of such center. 27. It is the case of Mr. Sarin that since the approval for the Rohtak R&D Centre was pending, the Petitioner cannot seek to have the benefit of Section 35 (2AB) for a period prior to its application for the Rohtak R&D Centre. Mr. Sarin further submits that the application wi .....

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entation and hence, there is no error in the Corrigendum which was issued by the Respondent. 28. A central plank of Mr. Sarin's submission was the decision in Apollo Tyres Ltd v. UOI (2010) SCC Online Del 1599 (hereafter Apollo Tyres ), on the basis of which he submits that until the agreement with the Prescribed Authority in Form 3CK is entered into, no deduction can be granted under Section 35(2AB). Mr. Sarin further submits that since the application for recognition of the Rohtak R&D .....

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n 35(2AB) prior to AY 2014-15. 29. According to Mr. Sarin, the Corrigendum merely deducted the expenditure qua the Rohtak R&D Centre, as mentioned by the Petitioner in its letter dated 26th March, 2015. Mr. Sarin, further submits that if the Petitioner submits the figures for the Rohtak R&D Centre, the Respondent is willing to consider the same. Mr. Sarin further relies on the clauses in the Policy of Approval of the DSIR that the certification can be granted only with respect to recogni .....

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2-13) and FY 2012-13 (AY 2013-14) have been sent to the Chief Commissioner (Income Tax Exemption)............. 31. Mr. Asheesh Jain, learned Senior Standing Counsel for the Income Tax Department, Respondent No.2 has also been heard. Mr. Jain submits that the Respondent No.2 has passed the Assessment orders allowing the deductions taking into account the expenditure for the Gurgaon R&D Centres, as per the certifications issued by the DSIR. Rejoinder Submissions 32. In the rejoinder submission .....

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esh also handed over a short note along with a few judgements on the proposition that the DSIR does not have the power to review its own certification. In response to this, the Counsel for the Respondents were given liberty to file a short note, which they have done on 19th July 2017. Analysis and findings 34. This is a classic case wherein the purpose and the legislative intent behind the enactment of Section 35 (2AB) is being set at naught, probably due to an error made by the Petitioner in it .....

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tter dated 31st October 2011, has a clear Note and further delineates and differentiates the expenses for the Rohtak Centre in a Tabular form. The same reads as under: Note: The claim includes expenditure of ₹ 124,78,85,250 on the new R&D center of the company under construction at Rohtak; Haryana for which the Company will make the application for approval to DSIR in F-Y 2011-12. Such expenditure is eligible for claim in the FY 2010-11 as per the policy for approval prescribed in DSIR .....

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rds Technical Knowhow for Test Track, Rohtak 215480 16-Mar-11 613179 05C2338 ETT 250,250 Tax Advisory Services for TCA & EPC Agreement Total B 1,247,883,250 Total A+B 1,724,505,762 36. It was the Respondent-DSIR which communicated to the Petitioner on 26th April, 2013 that the application for the Rohtak R&D Centre was premature. This then led to the filing of a second application. Though, the Petitioner made an error in its application for certification of R&D expenses, by not mentio .....

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he Petitioner merely sought addition of the Rohtak R&D Centre in the said certification by providing the separate figures for each of the Centres. The non-addition of the Rohtak R&D Centre and instead deletion of the expenditure incurred on the same by way of issuance of the Corrigendum dated 7th May, 2015, from the certification dated 9th March, 2015, is clearly unsustainable. Such an act on behalf of the DSIR results in completely depriving the Petitioner from claiming deductions of R& .....

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ction 35 (2AB) of the Act defeats the legislative intent. The Auditor's certificate on record is categorical that the Petitioner is maintaining separate sets of accounts for the Gurgaon and the Rohtak Centres and the necessary details of the expenditure incurred therein have also been submitted as far back as on 31st October, 2011 and even thereafter. Even the Form 3CM which was issued by the DSIR under cover letter dated 2nd February, 2015, mentions both the Gurgaon and the Rohtak R&D C .....

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ent in Sandan Vikas (supra) of the learned Division Bench of this Court which in turn approves the view taken by the Gujarat High Court in Claris Lifesciences (supra) reads as under: 3. …The objective is to encourage research and development by the business enterprise in India. 4. The provision further states that in order to claim this weighted deduction, it is to be certified by the competent authority that the assessee had undertaken research and development activity. … … .....

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hold that the assessee fulfils the conditions laid down in the aforesaid provisions. The discussion, which is undertaken by the Gujarat High Court while interpreting, the aforesaid provisions, is extracted below (Pg. 245) : 7.…The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the research and development facility, expenditure so incurred is eligible for weighted deduction. 8. The Tribunal has considered .....

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d, in other words, it is nowhere suggested that the date of approval only will be the cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop the facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of a .....

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the research and development facility has to be allowed for weighted deduction as provided by section 35(2AB). The Tribunal has also considered the legislative intention behind the above enactment and observed that to boost the research and development 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, the intention of the Legi .....

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to claim the weighted deduction in respect of the entire expenditure incurred under S.35(2AB) of the Act by the assessee. 5. We are in full agreement with the aforesaid approach of the Gujarat High Court. No substantial question of law, therefore, arises. The appeal is dismissed.... 40. The settled position in law is that, for availing the benefit under Section 35 (2AB) of the Act what is relevant is not the date of recognition or the cutoff date mentioned in the certificate of the DSIR or even .....

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early provides that any expenditure incurred by a party on its R&D facility except, insofar as it relates to land and building is liable to be allowed to be claimed as deduction (twice the amount of expenditure). A perusal of the scheme of the Act especially Sections 35 (2AB), 35A and 35AB reveals in no uncertain terms, that the purpose behind these provisions is to provide impetus for research, development of new technologies, obtaining patent rights, copyrights and know-how. 42. Insofar as .....

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ent case are different and there has been no omission by the Petitioner herein to obtain approvals. The stage for approval arises after the recognition is granted by the DSIR, for which the application was filed right at inception by the Petitioner. Upon obtaining recognition, which was granted on 26th March 2014, the Form 3CK was filed on 31st March 2014. There has been no lapse of time, unlike in Apollo Tyres (supra) wherein the recognition was granted on 31st March, 2004 and the Form 3CK appl .....

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