TMI Blog2019 (10) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... on in-house research development activities u/s. 35(2AB) - HELD THAT:- As decided in own case [ 2018 (12) TMI 1497 - ITAT PUNE] 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) 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) - Ground No. 2 raised in the appeal by the assessee is allowed - ITA No.805/PUN/2017 - - - Dated:- 4-9-2019 - Shri Anil Chaturvedi, AM And Shri Vikas Awasthy, JM For the Assessee : Shri Nikhil Pathak For the Revenue : Shri M.K. Verma ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in ITA No. 13/PUN/2017. The Tribunal vide order dated 14-11-2018 held that the assessee is eligible to claim weighted deduction under the provisions of section 35(2AB) of the Act. 3. On the other hand Shri M.K. Verma representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. 4. Both sides heard. Orders of the authorities below perused. In the appeal the sum and substance of the prayer of assessee with respect to ground No. 1 of the appeal is that disallowance u/s. 14A should be made only in respect of investments on which the assessee has earned dividend income. Undisputedly, the assessee has earned exempt income to the tune of ₹ 22 crores in the impugned assessment year. The assessee has made suo-moto disallowance of ₹ 51,39,625/-. The Assessing Officer after invoking the provisions of Rule 8D has re-worked disallowance u/s. 14A to ₹ 81,41,319/-. The contention of the assessee is that while computing disallowance u/s. 14A, the Assessing Officer has also taken into consideration those investments on which the assessee has not earned any exempt income. The Special Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Pune Bench of Tribunal in the case of Cummins India Ltd. Vs. DCIT (supra) and the Tribunal noted the provisions of section 35(2AB) of the Act, the approval given by DSIR in Form No.3CL and consequent to the approval given, whether DSIR had any role in approving the expenditure claimed by assessee. The relevant findings of Tribunal are vide paras 38 to 46, which read as under:- 38. 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 subsections of section 35 of the Act, the conditions and the allowability of expenditure vary. Sub-section (1) to section 35 of the Act deals with expenditure on scientific research, not being in the nature of capital expenditure, is to be allowed to research association, university, college or other institution; for which an application in the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 subrule (7A) has been substituted by IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016, under which the prescribed authority has to furnish electronically its report (i) in relation to approval of in-house R D facility in part A of form No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggest or imply that R D facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be 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 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 behin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old that the assessee had fulfilled the conditions laid down in the aforesaid provisions. 45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis- -vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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