TMI Blog2018 (4) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 35(2AB) of the Act to the facility for the year under appeal. - Decided in favour of assessee Disallowance u/s 43B on delayed payment of leave encashment - Held that:- Clause (f) to section 43B of the Act was inserted by the Finance Act w.e.f. 01.04.2002. However, the Hon’ble High Court of Calcutta in Exide Industries Ltd. Vs. Union of India (2007 (6) TMI 175 - CALCUTTA High Court) had struck down the said amendment being arbitrary and unconstitutional, applying the ratio laid down by the Hon’ble Apex Court in the case of Bharat Earth Movers Vs. CIT (2000 (8) TMI 4 - SUPREME Court). Once the said clause has been struck down, then the payment of leave encashment is a trade liability and not statutory liability, hence, the provisions of section 43B of the Act are not attracted. Direct the Assessing Officer to allow the aforesaid deduction to the assessee. - ITA No.690/PUN/2015 - - - Dated:- 9-4-2018 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Appellant : Shri Kishore Phadke For The Respondent : Shri Mukesh Jha, JCIT ORDER PER SUSHMA CHOWLA, JM: The appeal filed by the assessee is against order of CIT(A)-7, Pune, da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al from the prescribed authority. In reply thereto, the assessee pointed out that under section 35(2AB) of the Act, in order to claim weighted deduction, the same had to be certified by the Competent Authority, that the assessee had undertaken Research Development activity. The Competent Authority in this behalf was the Department of Scientific and Industrial Research (DSIR). The assessee explained that it was carrying on R D activity during the year and had incurred expenditure thereupon. The assessee had approached DSIR vide application dated 25.06.2012 for renewal of recognition of R D unit which was granted by it and it also granted approval for the expenses incurred by the assessee on in-house R D facility in prescribed Form No.3CM. The assessee thus, held that it had claimed the deduction according to the conditions mentioned in the said section. The Assessing Officer noted that Research Development expenses incurred for Bio-Diesel activity were ₹ 41,89,369/- which was claimed as deduction under section 35(1) of the Act and Research Development expenses incurred for D D activity was ₹ 57,64,322/-, for which weighted deduction under section 35(2AB) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm No.3CM was granted by DSIR on 18.03.2008 for the period 01.04.2006 to 31.03.2009. The learned Authorized Representative for the assessee pointed out that for identical facility, renewal application was submitted by the assessee on 06.02.2009. Vide letter dated 16.06.2009, recognition to the R D facility was extended upto 31.03.2012 and the certificate of registration was granted by DSIR on 24.06.2009. The assessee claims that it did not receive any certificate in form No.3CM. He further pointed out that on 06.05.2012 an online application was submitted for renewal of R D facility before the DSIR which was granted by DSIR on 25.06.2012 for the period 01.04.2012 to 31.03.2015. The assessee also pointed out that form No.3CM was granted by DSIR for the aforesaid period vide letter dated 05.11.2013. In respect of in between period, the assessee pointed out that on 03.06.2013, application was submitted along with form No.3CK for grant of form No.3CM, which was denied by DSIR vide letter dated 30.07.2013 on the ground that want of compliance regarding form No.3CK. The learned Authorized Representative for the assessee further pointed out that R D facility was approved for the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim. He further placed reliance on the ratio laid down by the Hon ble High Court of Karnataka in Tejas Networks Ltd. Vs. DCIT (2015) 60 taxmann.com 309 (Kar). 9. The learned Authorized Representative for the assessee further pointed out that the issue now stands covered by the decision of the Hon ble High Court of Delhi in Maruti Suzuki India Ltd. Vs. Union of India (2017) 84 taxmann.com 45 (Del), wherein reference was made to the decision of Hon ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (2010) 326 ITR 251 (Guj) and the CIT Vs. Sandan Vikas (India) Ltd. (2011) 335 ITR 117 (Del). 10. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against the claim of deduction under section 35(2AB) of the Act i.e. expenditure incurred on Research Development activity. For computation of business income under section 35 of the Act, expenditure on scientific research is to be allowed on fulfillment of certain conditions which are enlisted in the said section. Under various sub-sections of section 35 of the Act, the conditions and the allowability of expenditure vary. Sub-section (1) to section 35 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CK. Under sub-rule (5A) of rule 6 of the Rules, the prescribed authority shall, if he satisfied that the conditions provided in the rule and in sub-section (2AB) being fulfilled, pass an order in writing in form No.3CM. The proviso however lays down that reasonable opportunity of being heard is to be granted to the company before rejecting an application. So, the application has to be made under sub-rule (4) in form No.3CK and the prescribed authority has to pass an order in writing in form No.3CM. Sub-rule (7A) provides that the approval of expenditure under sub-section (2AB) of section 35 of the Act, shall be subject to the conditions that the facilities do not relate purely to market research, sales promotion, etc. Clause (b) to sub-rule (7A) at the relevant time provided that the prescribed authority shall submit its report in relation to the approval of in-house R D facility in form No.3CL to the DG (Income-tax Exemption) within sixty days of its granting approval. Under clause (c), the company at the relevant time had to maintain separate accounts for each approved facility, which had to be audited annually. Clause (b) to sub-rule (7A) has been substituted by IT (Tenth Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has to develop 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 any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of 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 s. 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 legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R, then that would be sufficient to hold that the assessee had fulfilled the conditions laid down in the aforesaid provisions. 18. The Hon ble High Court of Madras in CIT Vs. Wheels India Ltd. (2011) 336 ITR 513 (Mad) had also held that the assessee was entitled to weighted deduction for whole year and not merely from the date of notification. It was held by the Hon ble High Court that Once the prescribed authority approves the existence of a research and development facility and the expenditure incurred on such scientific research, the assessee would be entitled to the expenditure incurred for the whole of the assessment year and it cannot be granted in a truncated manner. 19. The Pune Bench of Tribunal in Nath Biogenes India Ltd. Vs. ACIT in ITA No.367/PN/2012, relating to assessment year 2008-09, order dated 27.01.2014 held that where the prescribed authority i.e. DSIR had given recognition, then such a facility is recognized for claiming deduction under section 35(2AB) of the Act. The Tribunal further held that if the approval was not in prescribed form No.3CM was not a serious discrepancy, which would result in disallowance of deduction to the assessee under section 35(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd, it is further noticeable that while granting of approval on 28.8.2008, the prescribed authority has, inter alia, observed in para 5 as under:- Ref.No. and Date of the application : Ref NBil dated 16.8.2007 The above Research Development facility is further approved for the purpose of section 35(2AB) from 1.4.2007 to 31.3.2011 subject to the conditions underlined therein. The term further makes it clear that the approval was not limited to 1.4.2007 to 31.3.2011 but was in addition to periods already approved. It is further noticeable that information obtained under RTI clearly showed that the assessee s applications were processed for earlier years also but no orders have been passed with reference to earlier assessment years. At the same time, the assessee has not been given any opportunity of being heard as required under proviso to Rule 6 (5A) before rejecting the said application. Therefore, impliedly, the application for the entire period, for which it was made, has to be deemed to have been granted. On the basis of above discussion, we are of the opinion that the assessee was entitled for weighted deduction u/s. 35(2AB). 22. The Tribunal concluded b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 application was made only on 21st August, 2008. Thus the present case is clearly distinguishable from the facts in Apollo Tyres (supra). 24. The assessee was held to be entitled to the claim of deduction under section 35(2AB) of the Act in the said case by the Hon ble High Court of Delhi. 25. The learned Departmental Representative for the Revenue has placed reliance on the ratio laid down by the Hon ble High Court of Karnataka in Tejas Networks Ltd. Vs. DCIT (supra), wherein it was first held that under section 35(2AB) of the Act, the prescribed authority was the Secretary, DSIR. Further, under sub-section (3) of section 35(2AB) of the Act provides that no company would be entitled for deduction under clause (1) unless and until it enters into agreement with the prescribed authority. The Hon ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not disentitle the assessee from claiming the deduction under section 35(2AB) of the Act. 27. We may also refer to the decision of the Pune Bench of Tribunal in Advik Hi tech (P.) Ltd. Vs. Addl. CIT (2014) 51 taxmann.com 245 (Pune Trib.), wherein the issue was decided following the ratio laid down by the Hon ble High Court of Delhi in Apollo Tyres Ltd. Vs. Union of India (supra). However, we have already referred to the decision of the Hon ble High Court of Delhi in Maruti Suzuki India Ltd. Vs. Union of India (supra), which in turn, has distinguished the facts of Apollo Tyres Ltd. and held that the said decision is not applicable. 28. Now, for adjudication, we may have to look at the events date-wise i.e. correspondence between the assessee and DSIR for three different phases of recognition of in-house R D facility. The assessee has filed the relevant documents in Paper Book. However, we are making reference to the date-wise events in this regard, which are placed in Paper Book at pages 43 to 166. The first set of correspondence between the assessee and DSIR relates for the first phase year 2006-09. The second set of correspondence between the assessee and DSIR relates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication filed for the next period of three years ending 31.03.2015. The assessee received form No.3CM from DSIR for the period 01.04.2012 to 31.03.2015 but no such form No.3CM was granted for the period 01.04.2009 to 31.03.2012. 30. The issue which arises is whether the assessee can be denied deduction under section 35(2AB) of the Act for non receipt of form No.3CM. The assessee admittedly, had received recognition in the initial period and thereafter, it is case of renewal of recognition of in-house R D facility, which was also granted by the prescribed authority for the period ending 31.03.2012 and also for the period ending 31.03.2015. The correspondence between the assessee and DSIR for the third phase reflects a reminder being sent by DSIR to renew the recognition of in-house R D facility beyond 31.03.2012. In other words, DSIR had not de-recognized the facility for the years 2009-12. The recognition to the facility has been granted from start till date and has not been withdrawn. In other words, recognition given by the prescribed authority which is mandate of section 35(2AB) of the Act is maintained and once the recognition is so maintained, the assessee has to be accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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