TMI Blog2020 (1) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of Research Development activity carried outside the in-house R D facility of the assessee - HELD THAT:- In the present case since the deduction is with reference to assessment year 2016-2017 (where the law applicable is the 1st day of April, 2016), which is prior to the Income Tax (Tenth Amendment) Rules, 2016, with effect from 01.07.2016 of Rule 6(7A) of the I.T.Rules, deduction u/s 35(2AB) has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Admittedly, the Assessing Officer has not disputed the correctness of the claim of expenditure incurred on Scientific Research. The contention of the DR that the amendment to Rule 6(7A) is procedural cannot be accepted, since the amended rule stipulates a condition that apart from approval of in-house R D facility of assessee, the expenditure also has to be quantified by the prescribed authority for weighted deduction u/s 35(2AB). As amended Rule 6(7A) effect the substantive right of the assessee and cannot be termed merely as procedural. Moreover, the co-ordinate Bench of Bangalore Tribunal in case of M/s.Mahindra Electric Mobility Ltd. v. ACIT [ 2019 (1) TMI 20 - IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l was on account of the then Finance Manager not following the issue with the Consultant. Later, the Finance Manager had resigned and the matter was left unattended. There are affidavits to the effect from both the earlier Manager and the present Manager of the assessee. The management came to know about the appeal not being filed on time when statutory audit for the financial year 2019-2020 was being prepared. Due to Covid-19 Pandemic, the process of filing the appeal took some more time from the end of the Chartered Accountant. Therefore, in the given facts and circumstances of the case, we are of the view that there is reasonable and sufficient cause in filing the appeal belatedly. In this context we rely on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. ISRO Satellite Centre in ITA No.532/2008 (judgment dated 28.10.2011), wherein it was held that in Income Tax matters delay in filing of the appeal should be condoned irrespective of the length of delay if there is a reasonable cause. The Hon'ble Apex Court in the case of Collector, Land Acquisition v. Mst.Katiji Others, reported in 167 ITR 471 had held that there should be a liberal and pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 275.51 lakhs w.r.t revenue expenditure and ₹ 27.34 lakhs w.r.t. Capital Expenditure respectively. Accordingly, an amount of ₹ 275.51 lakhs and ₹ 27.34 lakhs is considered for deduction u/s 35(2AB). Hence, the deduction claimed is restricted to the above sums as reflected in the Form 3CL. Details Amount claimed in computation Amount allowed in Form 3CL Excess claimed Revenue expenditure 3,17,63,251 2,74,51,209 43,12,042 Capital expenditure 27,33,582 27,33,582 Nil 3,44,96,833 3,01,84,791 43,12,042 Hence, the excess amount claimed by the assessee of ₹ 43,12,042 (Revenue expenditure) is disallowed an added back to the total income of the assessee. 5. Aggrieved by the order of the Assessing Officer in disallowing the claim of deduction u/s 35(2AB) of the I.T.Act, the assessee preferred an appeal to the first appellate authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR is the only 'Technically- equipped Body' which can ascertain and certify the authenticity of a R D claim; a domain which cannot be entered by a financial entity as the I.T. Authority. The requirement of Form- 3CL therefore is the cornerstone for making the requisite claim of R D expenditure - before the Income Tax Authority. By extension of the same logic, it cannot be the Assessee's case, that, the assessing authority could independently and freely examine and certify the genuine-ness of R D claim made in respect of the research-activity carried on, outside the in-house R D facility. In this view of the matter, I do not find substance in the Assessee's stand that, for the purpose of in-house R D certification, the DSIR would be the appropriate certifying authority whereas in respect of the R D facility as such, It was the assessing authority which could assume the role of a Technical I scientific expert. In background of the above discussion, it is clear from the provisions of section 35(2AB) and the prescribed conditionalities laid-out therein, that, the DSIR certification, forms the basis for the allowability and extent-thereof in respect of the quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted that the issue in question is squarely covered by the orders of the Tribunal in the case of M/s.Mahindra Electric Mobility Ltd. v. ACIT [ITA No.641/Bang/2017 - order dated 14.09.2018] and M/s.Indfrg Limited. V. ACIT [ITA No.98/Bang/2015 - order dated 30.07.2020]. 7. The learned Departmental Representative, apart from relying on the order of the Income Tax Authorities, submitted that the amendment to Rule 6(7A) of the I.T.Rules by Finance Act, 2016 with effect from 01.07.2016 is only procedural and the same is applicable to the relevant assessment year. 8. We have heard the rival submissions and perused the material on record. Admittedly, the assessee has in-house Research and Development facilities which is approved by the Department of Scientific and Industrial Research (DSIR) and was entitled to deduction u/s 35(2AB) of the I.T.Act. The Assessing Officer disallowed the deduction to the extent of ₹ 43,12,042 on the ground that DSIR has not approved the expenditure in Form 3CL. The CIT(A) confirmed the above disallowance. Further, the CIT(A) in para 5.3(iii) of the impugned order had stated that deduction u/s 35(2AB) of the I.T.Act. is not allowable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 with effect from 01.07.2016 only. Prior to this amendment, no such power was with DSIR. The Bangalore Bench of the Tribunal in the case of M/s.Mahindra Electric Mobility Ltd. v. ACIT [ITA No.641/Bang/2017 - order dated 14.09.2018] had held that prior to 01.07.2016 Form No.3CL has no legal sanctity and it is only w.e.f. 01.07.2016 with the amendment to Rule 6(7A)(b) of the I.T.Rules that the quantification of the weighted deduction u/s 35(2AB) of the I.T.Act has significance. The relevant finding of the Bangalore Bench of the Tribunal reads as follow:- 20. From the above discussion it is clear that prior to 1.7.2016 Form 3CL had no legal sanctity and it is only w.e.f 1.7.2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and Sec.35(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was affirmed by the Hon'ble Gujarat High Court in the case of CIT v. Sun Pharmaceutical Industries Ltd. reported in 250 Taxman 270 (Guj.). The Pune Bench of the Tribunal in the case of Cummins India Limited v. DCIT [ITA No.309/Pun/2014 - order dated 15.05.2018] had held that the action of the Assessing Officer curtailing the expenditure and consequent weighted deduction claim u/s 35(2AB) of the I.T.Act on the surmise that prescribed authority has only approved part of expenditure in Form No.3CL is not tenable in law. The relevant finding of the Pune Bench of the Tribunal reads as follow:- 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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