TMI Blog2022 (8) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant by : Shri Nikhil Pathak Respondent : Shri S.P. Walimbe ORDER PER S.S. GODARA, JM : These assessee s three appeals for A.Y. 2013-14, 2015-16 and 2016-17 arise against CIT(A) Pune s as many order(s) dated 07-01-2019 in former twin appeals and dated 02-08-2019 (last assessment year) passed in case No.PN/CIT(A)-1/DCIT Cir.1/PN/761/16-17, PN/CIT(A)-1/DCIT Cir.1/PN/ 46/17- 18 and PN/CIT(A)-1/DCIT Cir.1/PN/185/18-19, respectively, involving proceedings u/s 143(3) of the Income-tax Act, 1961, in short the Act . Heard both the parties. Case files perused. 2. It emerges at the outset that the assessee raises identical two substantial grounds in the instant batch of three cases. Its first and foremost substantive grievance common in all these three assessment years is that both the learned lower authorities have erred in law and on facts in invoking sec. 14A r.w. Rule 8D disallowance amounting to Rs. 75,20,908/-, Rs. 1,08,08,964/- and 9,15,39,570/-; case wise, respectively. 3. Learned counsel representing assessee submits at the outset that his sole substantive argument is that both the lower authorities have wrongly computed the impugned dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the DSIR has not approved expenditure of Rs.4.05 lakhs out of total expenditure of Rs.2,454.52 lakhs claimed by the assessee. The assessee was asked to explain why proportionate deduction u/s 35(2AB) of the Act be not disallowed to the extent of the amount disallowed / not considered by the DSIR as a part of eligible expenditure on Research Development activities of the company. The assessee made the submissions which were not found to be acceptable to the Assessing Officer. Accordingly, the Assessing Officer disallowed proportionate weighted deduction claimed u/s 35(2AB) of the Act of Rs.4.05 lakhs and added the same to the total income of assessee. Aggrieved by the order of Assessing Officer, assessee carried the matter before the CIT(A), who dismissed the appeal of assessee. 13. Aggrieved by the order of CIT(A), the assessee is now in appeal before us. 14. Before us the ld. AR reiterated the submissions made before the Assessing Officer and CIT(A) and further submitted that the issue is squarely covered in assessee‟s favour by the decision of Co-ordinate Bench of Pune in assessee‟s own case for A.Y. 2012-13. He also placed on record the copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fulfilment 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 prescribed form and manner is to be made to the Central Government for the purpose of grant of approval or continuation thereto. Before granting the approval, the prescribed authority has to satisfy itself about the genuineness of activities and make enquiries in this regard. Under sub-section (2B) to section 35 of the Act, a company engaged in the specified business as laid there on, if it incurs expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject 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 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 inhouse R D facility in part A of form No.3CL and (ii) quantifying the expenditure incurred on in-house R D facility by the company during the previous year and eligible for weighted deduction under sub-section 2AB of section 35 of the Act in part B of form No.3CL. In other words the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016. Prior to this amendment, no such power was with DSIR i.e. after approval of fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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