TMI Blog2018 (12) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... ch development activities under section 35(2AB) - Held that:- The issue arising before us is similar to the issue in Cummins India Ltd. Vs. DCIT [2018 (5) TMI 1314 - ITAT PUNE] and following the same parity of reasoning, we hold that where facility has been recognized by the prescribed authority and agreement has been entered into between facility and the prescribed authority and thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R D facility as weighted deduction under section 35(2AB) - No merit in the orders of authorities below in restricting weighted deduction claimed under section 35(2AB) on the ground that DSIR had not approved the said expenditure. It may be pointed out herein itself that reasons for not approving expenditure have also not been made available to the assessee. Consequently, the same cannot be basis for curtailing deduction claimed under section 35(2AB) of the Act. The Assessing Officer is thus, directed to allow weighted deduction under section 35(2AB) - ITA No.13/PUN/2017 - - - Dated:- 14-11-2018 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM For the Appellant : Shri Nikhil Pathak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of expenditure incurred on in-house research development activities u/s. 35(2AB) of the Income Tax Act 1961 to the extent of ₹ 18,42,000/- relying on the approval granted by the DSIR. 2.2 He erred in not appreciating that the DSIR had not provided any details or reasoning for such rejection of the approval and therefore it was incorrect and against the principles of natural justice to rely on the approval of the DSIR for the purposes of granting deduction u/s. 35(2AB). 2.3 The learned Commissioner of Income Tax (Appeals) - 1, Pune erred in not appreciating that the provisions of Section 35(2AB) did not provide for DSIR approval to the claim of R D expenses by the assessee for the purposes of allowing weighted deduction and there was no provision in the Income Tax Act which enabled the Assessing officer to disallow such weighted deduction based on such DSIR approval. 2.4 The learned Commissioner of Income Tax (Appeals) - 1, Pune erred in not appreciating that the DSIR was a competent authority only to approve the in-house R D facility u/s. 35(2AB) and to decide whether and to what extent an activity constitutes scientific research u/s. 35(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The learned Authorized Representative for the assessee stressed that since the assessee had already made suo motu disallowance, there is no merit in making further disallowance. He stressed that disallowance made is against law. 8. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 9. The limited issue which arises vide grounds of appeal No.1 to 1.5 is against disallowance made under section 14A of the Act read with Rule 8D(2)(iii) of the Rules. Admittedly, no disallowance has been made on account of interest expenditure by Assessing Officer, accepting the plea of assessee that no interest cost was attributable to tax free investments made by assessee. However, the Assessing Officer worked out disallowance under Rule 8D(2)(iii) of the Rules after recording satisfaction under section 14A(2) of the Act. The assessee on its own motion had disallowed ₹ 39,76,231/-, so it is not the case where no disallowance is to be made in the hands of assessee. The provisions of Rule 8D(2)(iii) of the Rules are clearly applicable to the year under appeal and once the same are attracted, then the disallowance, if any, has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 576 (Pune Trib.). He pointed out that facility has been approved by DSIR and certificate in Form No.3CL has been issued by DSIR independently. Then, thereafter there is no role of DSIR and weighted deduction claimed by assessee under section 35(2AB) of the Act could not be curtailed. 15. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 16. We have heard the rival contentions and perused the record. The issue before us is vis- -vis weighted deduction claimed under section 35(2AB) of the Act. The assessee had recognized R D facility, for which approval was given by DSIR. The assessee during the year under consideration had incurred expenditure of ₹ 15.05 crores (approx.), on which the assessee had claimed weighted deduction under section 35(2AB) of the Act. However, the said weighted deduction claimed under section 35(2AB) of the Act was curtailed by Assessing Officer by ₹ 18,42,000/- on the ground that DSIR had not approved the expenditure. The issue which arises is whether under the provisions of the Act, DSIR had any authority during the year under appeal to approve or dis-approve the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0%, 150% or 200% as prescribed from time to time. Clause (2) to section 35 of the Act provides that no deduction shall be allowed in respect of expenditure mentioned in clause (1) under any provisions of the Act. Clause (3) further lays down that no company shall be entitled for deduction under clause (1) unless it enters into agreement with prescribed authority for co-operation in such R D facility. The Finance Act, 2015 w.e.f. 01.04.2016 has substituted and provided that facility has to fulfill such condition with regard to maintenance of accounts and audit thereof and for audit of accounts maintained for that facility. 40. Under Rule 6 of Income Tax Rules, 1962 (in short the Rules), the prescribed authority for expenditure on scientific research under various sub-clauses has been identified. As per Rule 6(1B) of the Rules for the purpose of sub-section 2AB of section 35 of the Act, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research i.e. DSIR. Under sub-rule (4), application for obtaining approval under section 35(2AB) of the Act is to be made in form No.3CK. Under sub-rule (5A) of rule 6 of the Rules, the prescribed authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AB) of the Act for non issue of form No.3CL by the said prescribed authority or the power is with the Assessing Officer to look into the nature of expenditure to be allowed as weighted deduction under section 35(2AB) of the Act. The first issue which arises is the recognition of facility by the prescribed authority as provided in section 35(2AB) of the Act. 43. The Hon‟ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (2010) 326 ITR 251 (Guj) have held that weighted deduction is to be allowed under section 35(2AB) of the Act after the establishment of facility. However, section does not mention any cutoff date or particular date for eligibility to claim deduction. The Hon‟ble High Court held as under:- 8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of: (i) development of facility; (ii) incurring of expenditure by the assessee for 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the objective was to encourage research and development by the business enterprises in India. In the facts before the Hon‟ble High Court of Delhi, the assessee had approached DSIR vide application dated 10.01.2015. The DSIR vide letter dated 23.02.2006 granted recognition to in-house research and development facility of assessee. Further, vide letter dated 18.09.2006, DSIR granted approval for the expenses incurred by the company on in-house research and development facility in the prescribed form No.3CM. The Assessing Officer in that case refused to accord the benefit of aforesaid provision on the ground that recognition and approval was given by DSIR in the next assessment year. The Tribunal allowed the claim of assessee relying on the decision of the Hon‟ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (supra). The Hon‟ble High Court of Delhi taking note of the decision of the Hon‟ble High Court of Gujarat observed that it has been held that cutoff date mentioned in the certificate issued by DSIR would be of no relevance where once the certificate was issued by DSIR, then that would be sufficient to hold that the assessee had fulfilled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easoning, we hold that where facility has been recognized by the prescribed authority and agreement has been entered into between facility and the prescribed authority and thereafter the role of 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. Accordingly, we find no merit in the orders of authorities below in restricting weighted deduction claimed under section 35(2AB) of the Act by ₹ 18,42,000/- on the ground that DSIR had not approved the said expenditure. It may be pointed out herein itself that reasons for not approving expenditure have also not been made available to the assessee. Consequently, the same cannot be basis for curtailing deduction claimed under section 35(2AB) of the Act. The Assessing Officer is thus, directed to allow weighted deduction under section 35(2AB) of the Act at ₹ 18,42,000/-. The grounds of appeal No.2.1 to 2.5 are thus, allowed. The issue in ground of appeal No.2.6 is without prejudice basis and the same does not stand. The grounds of appeal raised by assessee are thus, partly allowed. 19. In the result, the appeal of assessee is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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