TMI Blog2017 (8) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be true that there are some errors in the Petitioner's application dated 31st October, 2011, however, one cannot ignore that since 2011, the Petitioner has been candid with the DSIR about its expenses for the Gurgaon and Rohtak R&D Centres and has given the break-up of the expenditure incurred thereupon; has submitted the Auditor's certificate required for the same; has entered into an agreement with the DSIR as required for sharing of technologies; and has also repeatedly requested for certification 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (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 of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such form and within such time as may be prescribed. ( 5) No deduction shall be allowed in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 application on Form 3CK of the Income Tax Rules, 1962 ( Rules ). 6. On 26th April, 2013, the DSIR informed the Petitioner that it could not consider the claims for recognition of the Rohtak R D Centre at that stage, as the said R D Centre was not yet functional, and hence, the Petitioner s application was closed as being premature. 7. On 8th/13th January, 2014, the Petitioner again submitted an application, to the DSIR seeking recognition for the Rohtak R D Centre as its 'Crash Test 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crores, which included a sum of ₹ 124.78 Crores incurred on the Rohtak R D Centre and sought inclusion of the Rohtak R D Centre in the said certification of expenditure. 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 financial year which ended on 31st March, 2011, relevant to AY 2011-12, it is entitled to deduction in AY 2011-12 itself and thereafter in subsequent years for both its Gurgaon Rohtak R D Centres, under Section 35 (2AB). The Petitioner also relied upon the Guidelines for approval in Form 3CM of in-house R D Centres recognised by the DSIR issued in May, 2010. Clause (iv) of para 6 of the 'GUIDELINES FOR THE APPROVAL IN FORM 3CM OF IN-HOUSE R D CENTERS REGGNISED BY DSIR AND SUBMITION OF REPORT IN FORM 3CL UNDE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, 2015, the Dispute Resolution Panel (DRP) which was seized of the dispute in the Petitioner's case against the Revenue for AY 2011-12, relying on the impugned Corrigendum, issued directions under Section 144C(5) of the Income Tax Act 1961 ( Act ), to the AO to consider the R D expenses of the Petitioner only with respect to its Gurgaon R D Centre, thereby holding that the Petitioner was not entitled to deduction in respect of the capital expenditure incurred by the Petitioner for its Rohtak R D Centre. The relevant extract of the DRP's directions read as 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. Hence, AO is directed to consider only the expenses pertaining to Gurgaon facility for showing deduction u/s 35 (2AB) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 expenditure incurred on both its R D Centres for 2013-14. The DSIR did not accede to this request. In the meantime, the Revenue passed a draft Assessment Order dated 30th December, 2016 under Section 143 (3) for AY 2013-14 disallowing the expenditure of ₹ 984,27,10,769/ (being weighted deduction @200%) under Section 35 (2AB) and added back the entire amount to the income of the Petitioner. 21. Thus, the Petitioner sought amendment of the pending writ and prayed for the following reliefs in 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s annexed to the said application clearly had the following note: 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 guidelines. The company has 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 certification. However, the DSIR, in the most arbitrary manner, instead of adding the name of the Rohtak R D Centre, deleted the expense incurred for the said R D Centre and issued the Corrigendum dated 7th May, 2015. This, according to Mr. Ganesh, has inflicted a huge financial impact to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roval 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 with the relevant Form does not mention the 'Rohtak R D Centre'. He points out that in the application dated 31st October, 2011, there was a deliberate intention on the part of the Petitioner to merge the expenditure of the Rohtak R D Centre with that of the Gurgaon R D Centre and obtain certification of the said expense under the garb of the said expenses being for the Gurgaon R D Centre. The error by the Petitioner is not merely a clerical error but a fraudulent misrepresentation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent that the Respondent did not provide the details for the Rohtak Centre, is wholly incorrect as per the record. Further submissions and notes of arguments 33. On, 17th July 2017, Mr. S. Ganesh 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 its initial request for certification and the unreasonable attitude thereafter adopted by the DSIR. 35. A perusal of the correspondence between the Petitioner and DSIR reveals that on 31st October, 2011, when the Rohtak R D Centre was still being set up, the Petitioner, while applying for certification of R D expenses, had submitted the details about its Rohtak R D Centre to the DSIR, and all the relevant documents were also filed therewith. The Auditor's report accompanyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the correspondence, it does not appear that there was any intention to mislead the Respondent. The Petitioner has candidly informed the requisite details of both the R D centres since inception. 37. 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 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 D expenses qua its Rohtak R D Centre. 38. It is the admitted position on both sides that the R D Centre at Rohtak is recognized but the question being raised is as to whether the expenditure incurred on the said Centre since inception i.e., even prior to recognition being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xtracted 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 the submissions made on behalf of the assessee and taken the view that the section speaks of: ( i) development of facility; ( ii) incurring of expenditure by the assessee for the development of such facility; ( iii) approval of the facility by the prescribed authority, which is DSIR; and ( iv) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere suggest or imply that the research and development facility is to be approved from a particular date and, 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 prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) has rightly observed that the date of approval of the R D Centre, not being a part of the provision, extending benefit only from the date of recognition amounts to reading more in the law which is not expressly provided . 41. Section 35 (2AB) clearly 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 the Apollo Tyres (supra) is concerned, in the said case, the Petitioner had omitted to apply for approval under Form 3CK, though recognition was granted to its R D Centre. The said Form 3CK consists of the Agreement to be entered into with the DSIR, in Part B. The omission by the Petitioner was held against it and this Court held that since the Petitioner had omitted to obtain the approval under Form 3CK, it is not entitled to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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