TMI Blog2023 (5) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be imputed on the share application money. It is ordered accordingly. Imputing commission with respect to Corporate Guarantee - HELD THAT:- We direct the TPO to recompute the guarantee commission @0.5% for the year under consideration - assessee has raised specific objection before the Ld.DRP with regard to Stripes Farmaceutica Participacoes Ltd, Brazil that the guarantee was provided only in the next year and not in the year under consideration. DRP has not given any specific finding in this regard. We therefore direct the TPO to examine factually as to the year in which the guarantee was provided to Stripes Farmaceutica Participacoes Ltd, Brazil while recomputing the guarantee commission. Plea of the assessee before the DRP that the guarantee commission should be restricted for the period of guarantee has not been considered and the TPO in the case of Starmore Ltd has computed the adjustment for the entire year though guarantee was provided only on 17th March, 2010. We direct the TPO to consider period of guarantee while re-computing the guarantee commission as per the directions in this order. Upward adjustment to the consideration received towards sale of inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance u/s 14A - HELD THAT:- AO and the DRP have not considered the submissions of the assessee and fact being identical to AY 2008-09 we remit the issue back to the AO for a fresh consideration. AO is directed to keep in mind the decisions of Delhi International Airport [ 2022 (10) TMI 300 - DELHI HIGH COURT ] and Era Infrastructure [ 2022 (7) TMI 1093 - DELHI HIGH COURT ] after giving a reasonable opportunity of being heard to the assessee. MAT computation - DRP with respect to adjustments made in the book profits with respect to disallowance made u/s 14A and leave encashment, gave a direction to AO to exclude the component of leave encashment from the workings of the profit for the purpose of MAT computation, which was not followed - HELD THAT:- We direct the Assessing Officer to consider the directions given by the DRP and recompute the book profits accordingly. Disallowance of weighted deduction u/s 35(2AB) - HELD THAT:- As assessee should be allowed the weighted deduction as has been claimed in the return of income and accordingly direct the assessing officer to delete the disallowance made in this regard. Disallowance u/s 14A while computing book pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 14A Rs. 3,64,12,003/- 4. The Assessing Officer also made adjustment to the book profit under section 115JB towards the amount disallowed under section 14A and also towards the provision for leave encashment and doubtful debts. Aggrieved, the assessee filed objections before the DRP. The Ld.DRP gave partial relief to the assessee with respect to the notional interest on share application money, guarantee commission, and upheld the TP adjustment towards interest on receivables and sale of shares of Stripes SA Pharmaceuticals Pty Ltd. On the Corporate tax disallowance / additions made by the Assessing Officer, the Ld.DRP upheld the disallowance of deduction under section 10B, disallowance of weighted deduction under section 35(2AB), disallowance of premium on FCCB and disallowance under section 14A. With regard to the adjustment made by the Assessing Officer to the book profits under section 115JB, the Ld.DRP gave a direction to exclude the provision made towards leave encashment while arising at the book profit. The assessee is in appeal before the Tribunal against the final order of assessment passed by the Assessing Officer pursuant to the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n money pending allotment, and in doing so have grossly erred: 4.1 that re-characterization of the transactions (treating share application money as loan) / which is not permissible under the transfer pricing provisions i.e. Section 92-92F of the Act; 4.2 in failing to appreciate the clear distinction between a loan and an investment ; 4.3 in ignoring the fact that the shares were subsequently allotted by the Associated Enterprises during FY 2012-13 and FY 2013-14 and hence the share application money invested by the Appellant could not be deemed as granting of loan. 4.4 in failing to appreciate the fact that only real income can be brought within the ambit of taxation; 4.5 in failing to appreciate the business rationale/expediency at the time of remitting the O amount; and 4.6 in adopting the rate of interest at 8 per cent, with arbitrary assumptions, for purpose of imputation of interest on share application money and levy thereon. 5. Without prejudice to the grounds mentioned in ground 2 and 4 above, even assuming at the same time denying, should there be a levy of interest, such interest ought to 0 have been computed based on the prevalent LIBOR rate du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had sold the investment in its subsidiary, only to comply with the RBI regulations, as per which there was restriction to hold more than two direct wholly owned overseas subsidiaries by an Indian enterprise.. 7.3 In failing to appreciate the fact that the investments in Strides SA Pharmaceuticals Pty Ltd was sold to Linkace Limited, a step down wholly owned subsidiary of the Appellant, which was a part of internal re-structuring to streamline and simplify the overseas structure of the Appellant and which was solely implemented to comply with the RBI regulations. 7.4 In not taking cognizance of the valuation report obtained by the Appellant from an independent valuer which was prepared in accordance with standard valuation principles and which was furnished during the course of the transfer pricing / DRP proceedings 7.5 Grossly erred in arriving at the value per share based on the financials of Strides SA Pharmaceuticals Pty Ltd pertaining to the period December 2010 (being FY 2010-11) ^ instead of adopting the value per share in the year of transfer. 7.6 The Learned AO while passing the final order has erred in considering the amount at (Rs. 1,44,66,873/- instead of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in not appreciating that, the definition of 'information Technology Enabled Services' as per provisions of the Act is very wide and covers any product or service and includes any data processing and is not restricted to computer software. 2. Disallowance of premium payable on redemption of Foreign Currency Convertible Bonds ('FCCB') of Rs. 53,75,81,482/- 2.1. The learned AO erred in disallowing and the Hon'ble DRP erred confirming the disallowance the expenditure of Rs. 53,75,81,482/- being premium payable on redemption of FCCB on the ground that the said expenditure is a mere provision towards the liability which is arising on maturity i.e. in future and hence not allowable as deduction in FY 2009-10 as the expenditure neither fructified nor was ascertainable. 2.2. The Hon'ble DRP and the learned AO failed to appreciate that FCCBs are characterized as debt and cannot partake the characteristic of equity capital. The bond holders are not and cannot be treated on par with equity shareholders. 2.3. The Hon'ble DRP and the learned AO grossly erred in appreciating the fact that the interest/redemption premium on FCCBs are a charge on the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 14A r.w. Rule 8D , without appreciating the fact that there ought to be nexus between exempt income earned and 'expenditure incurred' thereon. In the absence of any exempted income (being earned, the question of expenditure having nexus / connection with income earned does not apply. 4.4. The Hon'ble DRP and the learned AO have erred in not appreciating that the disallowance u/s 14A read with Rule 8D is to be in relation to the income which does not form part of the total income and the disallowance can be done only by taking into consideration the investment which has given rise to this 'exempted income' , which does not form part of the total income 4.5. The Hon'ble DRP and the learned AO ought to have appreciated that the investments O held by the Appellant in domestic companies were made out of commercial expediency and entirely for business reasons and not to earn dividend income. 4.6. The Hon'ble DRP and the learned AO have erred in not appreciating the fact, the Appellant has been able to obtain a business advantage leveraging on the market presence and manufacturing / marketing capabilities etc. of the companies in which the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the law prevailing on the subject, no disallowance u/s. 14A of the Act is called for and the Assessing Officer and the Dispute Resolution Panel ought to have held as such. 1 : 3 The Appellant submits that the Assessing Officer be directed to delete the disallowance made u/s. 14A made to the 'book profits' and to re-compute its total income and tax thereon accordingly. 5.2 The assessee further raised the following additional grounds of appeal:- ADDITIONAL GROUND OF APPEAL I : Re.; Disallowance of weighted deduction u/s. 35(2AB) of the Income-tax Act, 1961 f'the Act'); 1 : 1 The Assessing Officer and the Dispute Resolution Panel have erred in disallowing the claim of weighted deduction u/s. 35(2AB) of the Act on the ground that the Appellant has failed to submit necessary documentary evidences. 1 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, it is entitled to claim weighted deduction u/s. 35(2A8) of the Act and hence the action of the Assessing Officer and the Dispute Resolution Panel in this regard is incorrect, erroneous and not in accordance with the law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO has used the cost of capital rate for charging interest which is not correct. 9.1.3 The Ld.DR supported the orders of the lower authorities. The Ld.DR submitted that interest on delayed payments is a separate international transaction and the TPO was correct in making adjustment of interest on delayed receivables. With regard to the submission of the Ld.AR that the assessee is not charging any interest for non AE receivables, the Ld.DR submitted that the assessee could not submit the details of delay in export proceeds from non AEs and therefore, the claim that no interest is charged on non AE transactions is to be verified. 9.1.4 We heard the parties and perused the materials on record. The details of receivables and the subsequent realization as submitted by the Ld.AR is extracted below:- Sl No Name of the AE Amount in INR Remarks Average Realisation period after considering Grace Period Average credit period 1 Ascent Pharmahealth Asia Pte Ld 56.783 -63 79 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TP adjustment made in this regard should be deleted. This ground is allowed in favour of the assessee. 9.2 Interest on share application money 9.2.1 The TPO observed that the assessee has given share application money to Stripes Acrolab International, UK and also to Starsmore Ltd, Cyprus. The TPO charged interest @8% on the share application money and imputed interest as per below working:- Particulars Starsmore Ltd Strides Acrolab Internal Ltd Opening Balance 486,64,50,167 244,96,00,836 Additional Investment by assessee 2,03,08,676 Allotted during the year 40,87,50,000 Amount refunded by AEs during the year 32,46,73,729 Closing Balance 439,33,35,114 244,96,00,836 Average 462,98,92,640 244,96,00,836 Sr.No. Name of AE Avg. Bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn case for A.Y. 201415 has considered a similar issue and held that 14. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below along with case laws cited by the Id. AR for the assesses. At the outset, it needs mention that it has been held by the Hon'ble Bombay High Court in the case of DIT v/s Besix Kier Dabhoi -(2012) 210 Taxman 151 (Bombay) that the Revenue has no power to re-characterize a transaction entered into by the Assessee. Therefore admittedly, the AO or the TPO are not empowered to convert and re-characterize a transaction of share application into a loan transaction. This aspect of the matter and this judgment has been overlooked by the DRP in its order for earlier year. As such, it could not be followed. Secondly, the remittance of the said share application money was approved and supervised by the RBI and the purpose of remittance as approved was investment in share capital. As such, there is no dispute to the fact that the amounts paid were on account of investment in share capital of the associates or subsidiaries. We further note that even otherwise the transaction of issue of shares is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided in Vodafone IV and would be binding on all authorities within the State till the apex court takes a different view on it. Therefore, in view of the fact that the Revenue does not dispute that the issue on the merits stands covered by the decision ofVodafone IV it would serve no useful purpose by directing the petitioner to prosecute its objections before the Dispute Resolution Panel and the Dispute Resolution Panel disposing of the same in accordance with Vodafone IV. Thus, in the present facts the distinction sought to be made on the ground of alternative remedy is not such as to warrant not entertaining the petition. 10. The second distinguishing feature from that of Vodafone IV, as canvassed by the Revenue, is that Form 3CEB in respect of the transaction of issue of shares to its associated enterprises, is not disclosed as an international transaction. This the petitioner was obliged to do as the transaction is an international transaction. ' This was in fact done by the petitioners in Vodafone IV. This stand by the Revenue is a little curious as in Vodafone IV the Revenue contended that as the petitioners therein had filed Form 3CEB in respect of issue of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion only when income arises out of international transaction and such income is chargeable to tax under the Act. The issues raised in the present petition are identical to the issues which arose for consideration before this court in Vodafone IV. Therefore, following the aforesaid decision we set aside the order dated January 30, 2013, of the Transfer Pricing Officer to the extent it holds that the arm's length price of issue of equity shares is Rs. 183.44 per share as against Rs. 10 per share as declared by the petitioner and consequent deemed interest brought to tax on the amount not received when benchmarked to the arm's length price. Accordingly, we set aside the draft assessment order dated March 30, 2013, to the extent it seeks to bring to tax the arm's length price of the share issued by the petitioner to its non-resident associated enterprises and also deemed interest which is sought to be brought to tax on the ground of non- receipt of the consideration equivalent to the arm's length price by the petitioner on issue of equity shares. It is further clarified that the petitioner's objection before the Dispute . Resolution Panel filed on April 25, 2013, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed by the' TPO on account of issue of shares is deleted. Accordingly, ground of objection number 16 of the assessee is allowed. 20. We, therefore, respectfully following the ratio laid down by the Hon'ble Bombay High Court, reverse the direction of DRP and direct the AO to delete the addition on account of notional interest of Rs. 2,44,20,173/-. 15. Similar view is also taken in other judgments relied on by the Ld. AR. Since, no contrary judgments have been brought to our notice, relying on the above stated judgments, we direct the AO to delete the impugned adjustment made by the TPO as affirmed by the DRP towards notional interest on share application money for belated allotment of equity shares. 9.2.6 We also notice that similar view has been held by the Tribunal in assessee s own case for A.Ys 2008-09 2015-16. Considering the facts being identical for the year under consideration also, respectfully following the above decision, we hold that no interest shall be imputed on the share application money. It is ordered accordingly. 9.3 Imputing commission with respect to Corporate Guarantee 9.3.1 During the assessment proceedings, the assessee submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate guarantees to overseas AE s is an international transaction. 030. Now the issue is what is the arm s-length price of the corporate guarantee commission to associated enterprises. The coordinate bench on identical facts and circumstances in case of Everest Kanto cylinders [Everest Kento Cylinder Ltd. [IT Appeal No. 7073 (Mum.) of 2012, dated 23-11-2012] ] has held that guarantee commission should be charged @ 0.5% p.a. for providing corporate guarantee for the purpose of determining arm s length price. Both the parties could not give us any reason to deviate from the above arm s-length price as held by the coordinate bench, which has been upheld by the honourable Bombay High Court. The case of Asian Paints [supra} cited before us for benchmarking @ 0.20 % has different and distinguishing facts. Further corporate guarantee commission is to be charged at that amount of Guarantee given and cannot be reduced to the extent of amount of borrowings by the AE as both are separate and distinct facts. Considering the various decisions in this regard, we direct the AO to limit the adjustment to 0.5% p.a. on the amount of corporate guarantee provided based on the period for which the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is as under:- Particulars Amount in Zar Amount in Rs. Total investment 749,822 4,694,036 Number of shares allotted 510 510 Value per share 1,470 9,204 Book value per share on Dec 2010 5,061,82 31,688 ALP of total investment (510*5061,82) 25,81,528 1,61,60,883 Sale value of investments 4,494,036 Variation / Adjustment 1,14,66,847 9.4.2 The assessee submitted before the DRP that as per the valuation report based on net effect value method and discounted cash flow method, the share price is in the range of Zar 1371 to Zar 1515 and the price charged is within this range and accordingly, the transaction was considered to be at arm s length. The assessee also submitted that the TPO while recomputing the valuation, has taken into consideration the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld.DR, on the other hand, supported the orders of the authorities below. He further submitted that the assessee has not benchmarked this transaction in the first place. The TPO has determined the value by NAV method and determined the adjustment. The DRP has taken the DCF method and determined the adjustment. The assessee has claimed that the value was determined by a registered valuer which should be accepted. The assessee took weighted average of the value from NAV and the DCF method during TP and DRP proceedings. The Ld.DR further contended that the assessee has claimed that the revaluation reserve must be not taken into account while calculating the value of the shares. However, the DRP has taken the DCF method and has held that this was closer to the value arrived by the TPO and is thus not unreasonable as given in para 6.21 of the DRP order on page 26. This shows that the value is similar as determined by both the methods and therefore the stand of the TPO is justified and the adjustment be sustained. 9.4.5 We have heard the rival submissions and perused the materials available on record. The assessee while arriving at the valuation of shares has adopted NAV method in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the year ended 31st December 2009 and decide in accordance with law. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly. 11. Corproate Taxes 11.1 Disallowance of deduction claimed u/s 10B 11.1.1 The assessee, during the year under consideration, claimed deduction of Rs. 11,44,12,959/- under section 10B in respect of STAR division which is engaged in contract manufacturing and research division. The assessee submitted before the assessing officer that star is registered and approved as EOU carrying on the operations relating to pharmaceutical business process outsourcing facility in research and development and STAR commodities, generic version of product of re-formulating existing innovative product. The assessee also made a detailed submission on the nature of activity carried through the star facility that this reformulated generic version of the product is produced / manufactured as a prototype and later, all the technical and other data relating to the product is compiled in the form of a dossier and submitted to the regulatory authorities for approval. Further, the assessee admits that this product dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the 'process of manufacture' but only granting the facility / license in respect of manufacture of Pharmaceutical products by utilizing the said process in certain territories in return for which the assessee is paid the fees / Development Income, on which the assessee is claiming deduction u/s 10B. Further, the assessee's contention that the amount received by the assessee in return for this development process is called 'Development Income' and not 'Fees' as stated by the Assessing Officer is of no relevance, since the nature of said income is not determined by the AO based on the nomenclature used by the assessee for consideration received. Thus, since the granting of such a facility / license to manufacture and sell within a territory, using the process developed by the assessee is what the activity on which the assessee is earning income, the same can by no stretch of imagination be treated as 'manufacture or production of an article or thing and export thereof. Coming to the various decisions relied on by the assessee, the assessee cannot derive any strength from the said decisions since the same deal with the issue of manufacture or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of scientific Engineering House Pvt Limited vs CIT (1986) 157 ITR 86 (SC) held that the compilation of technical knowhow is an article to be considered as capital asset eligible for depreciation. Similarly, the Mumbai Tribunal also in the case of ISBC Consultancy Services Ltd. VS DCIT (2002) 88 ITD 134 (Mum) held that the customization of software amounted to manufacture and entitled to deduction under Section 10A of the Act. In view of the above given facts and circumstances, we are of the view that the assessee is entitled to deduction under Section 10B as it has established that the relevant conditions of section 1OB that there must be a production of article or thing and export of such article . or thing and consideration thereof brought into India within the time permissible under the foreign exchange regulations are fulfilled and accordingly allowable. We allow this issue of assessee's appeal. 042. The learned D.R. could not show us any reason to deviate from the aforesaid order and no change in facts and law were alleged in the relevant assessment year. Thus, respectfully following the order passed by the Co ordinate Bench of the Tribunal in assessee s own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar and, therefore, cannot be allowed as a deduction. The DRP relied on its own decision in assessee s own case for A.Y. 2009-10 in this regard. 11.2.3 Before us, the Ld.AR submitted that the same issue has been considered by the co-ordinate bench in assessee s own case for A.Ys 2007-08 and 2008-09 where the issue is held in favour of the assessee. We heard the Ld.DR who supported the order of the lower authorities. 11.2.4 We notice that the co-ordinate bench in assessee s own case for A.Y. 2008-09 has considered similar issue and held that 053. We have heard the rival contentions and gone through the facts and circumstances of the case. The learned Counsel for the assessee explained the facts that the assessee company has issued FCCB (listed in Singapore Stock Exchange) to the extent of US$ 40 million. These bonds carry an interest rate of 0.5% p.a. and are redeemable on April 19, 2010 at 136.78 percent of the principal amount. Further, these bonds are convertible into shares by bond holders on or after May 18, 2005 and only at the option of bond holders. The total issue expense relating to the issue of FCCB is USD $ 10,77,926 claimed in equal instalments over a period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinuation of 1/5th of FCCB premium as claimed in AY 2008-09 and therefore the issue is covered by the above decision of the coordinate bench. It is also relevant here to note that the DRP in assessee s case for AY 2013-14 has directed the AO to allow the premium on redemption of FCCB of USD 100 Mn as a deduction provided the assessee withdraws the claim in 2009-10 to 2013-14. We accordingly direct the AO allow the deduction claimed by the assessee towards FCCB premium u/s. 37(1) of the Act taking into consideration the directions of the DRP for AY 2013-14. 11.3 Disallowance of FCCB issue expenses 11.3.1 The Assessing Officer has disallowed FCCB issue expenses which is included as part of FCCB premium expenses to the tune of Rs. ,69,13,062/-. The assessee submitted before the DRP that the Assessing Officer has erroneously disallowed the issue expenses also while disallowing the FCCB premium amount. The D upheld the disallowance by stating that expenditure towards issue expenses have not been incurred during the assessment year 2010-11 and accordingly cannot be allowed. 11.3.2 The Ld.AR submitted that the issue under consideration is covered in favour of the assessee by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r attention to the decision of the co-ordinate bench in assessee s own case for A.Y. 2008-09 where the issue is held in favour of the assessee. Reliance in this regard is also placed on the decision of the Hon ble Delhi High Court in the case of PCIT vs Delhi International Airport (2022) 144 Taxmann 80 (Del) wherein it has been held that provisions of section 14A would not be applicable with no exempt income was received or receivable during the relevant previous year. The Ld.AR also placed reliance on the decision of the Hon ble Delhi High Court in the case of PCIT vs Era Infrastructure India Ltd (2022) 141 taxmann.com 289 to submit that the amendment made to section 14A of Finance Act, 2022 is prospective and not applicable in assessee s case for the year under consideration. 11.4.3 We heard the parties and perused the material on record. We notice that the co-ordinate bench in assessee s own case for A.Y. 2008-09 has considered the issue of disallowance under section 14A and held that 060. We have considered the rival submissions and perused the material available on record. We find that the assessee during the course of assessment proceedings, has raised the following s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s own case in Strides Pharma Science Ltd. v/s DCIT, in ITA no.7370/Mum./2018, for the assessment year 2014 15, vide order dated 07.02.2020 and 7992/Mum/2019, for the assessment year 2015-16, vide order dated 06.04.2022 has deleted the addition made to book profit computed under section 115JB of the Act by observing as under: 34.We have heard both the parties, perused materials available on record and gone through orders of the authorities below along with case laws cited by the ld. AR for the assessee. After considering the facts of the case and the various judgements cited supra, we are ofthe opinion that no addition to book profits u/s 115JB could be made on the basis of disallowance u/s 14A read with Rule 8D of the Income Tax Rules, 1962. This legal proposition is supported by the decision of Hon;ble Bombay High Court in case of CIT v/s Bengal Finance and Investments (ITXA No. 337 of 2013 Bombay High Court), where it was held that computation contemplated under clause (f) of explanation (1) to section 115JB is to be made without resorting to computation as contemplated u/s 14A r.w.r 8D of the Income Tax Rules, 1962. A similar ratio is laid down by special Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rs. 14,38,59,915/- under section 35(2AB). The Assessing Officer did not allow the weighted deduction to the assessee for the reason that the assessee has not obtained the expenditure approval for the items of expenditure in respect of which it had claimed weighted deduction from DFIR. Therefore, the Assessing Officer allowed only 100% of the amount of expenditure incurred and disallowed a sum of Rs. 5,84,64,070/- being the balance claimed as deduction. The assessee, before the DRP submitted that it had incurred the revenue expenditure to the extent debited to the P L Account and also incurred a capital expenditure of Rs. 1,05,10,765/- and claimed weighted deduction towards both the amounts. The assessee submitted that it is entitled to claim weighted deduction since the assessee had carried out research and development activities from approved facilities which is certified by the DSIR in Form 3M. The assessee further submitted that the non receipt of required approval was a procedural delay and since the R D facility is approved, the assessee is entitled for a weighted deduction. The DRP, after considering the submissions of the assessee held that 9.4 We have consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) of the Act. 11.6.4 The Ld.DR vehemently argued that the expenditure which is not approved by the prescribed authorities cannot be eligible for weighted deduction and in this regard made a detailed submission which has been taken on record. With regard to the plea of the ld AR that the issue may be set aside to the Assessing Officer for verification of expenditure for weighted deduction, the ld DR submitted that the Assessing Officer has no authority to verify the expenditure as has been held by the Hon ble Karnataka High Court in the case of Tejas Networks Ltd., vs DCIT (2015) 60 taxmann.com 309 and therefore without the certificate from DSIR the assessee can be allowed only 100% of the expenditure incurred. 11.6.5 We heard the parties and perused the materials on record. Before proceeding further, we will look at the relevant provisions of section 35(2AB), Rules and the Guidelines for approval by DSIR of the in-house R D facility :- Section 35(2AB): (1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule]] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re on scientific research. The Bill proposes to introduce a new sub-section(2AB) to allow a company, a deduction of a sum equal to 1-1/4th times the sum paid on any expenditure incurred by a company on scientific research including an expenditure of capital nature related to the business. This deduction will be available to the companies having in-house Research Development facility approved for the purpose of this section by the prescribed authority and engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipment, computers, telecommunication equipment, chemicals or any other article or thing notified in this behalf. It is also proposed that no deduction shall be allowed in respect of expenditure on land and building. It is also proposed that the company shall enter into an agreement of cooperation and audit with the prescribed authority before approval of the research and development facility. The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years. In terms of Sec.35(2AB)(4), the prescribed authority has to submit its report in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cientific and Industrial Research 11.6.6 In terms of Sub-Rule (4) of Rule-6, the application required to be furnished by a company under sub-section(2AB) of section 35 shall be in Form No.3CK. The said Application contemplates annexure of Directors declaration and declaration by the Auditor. The form of declaration to be given by the Auditor is important and it reads thus: AUDITOR'S CERTIFICATE I have audited the accounts of the in-house R D Centre of M/s _______________________ located at ___________________ which is approved U/S 35(2AB) by the Prescribed Authority (Secretary, DSIR). I certify that: a) The company has maintained separate accounts for the R D Centre approved by DSIR U/S 35(2AB). b) The accounts have been satisfactorily maintained. The expenditure certified are also in consonance with DSIR guidelines. c) The firm has extended full co-operation to me in carrying out the audit of the accounts of the R D Centre. The expenditure of Rs. ------------ reported for the financial year ----------relevant to the assessment year -------------- as detailed out in Appendix II to Annexure IV of DSIR guideline at para ₹ 4 is correct to the best of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It may be eligible for deduction u/s.35(1) at normal rate of 100% as normal expenditure on scientific research but not weighted deduction of 150% u/s.35(2AB) of the Act. This distinction between normal deduction and weighted deduction is discernible from a reading of the entire statutory provisions of Sec.35 of the Act. 11.6.8 In assessee s case, there is no dispute that the assessee has fulfilled all the conditions for the purpose of section 35(2AB). This fact has been accepted by the revenue which is evidenced by the AO s order of assessment where he has allowed deduction towards the impugned amount @ 100% as against the 150% claimed by the assessee. Therefore the issue for consideration is limited to whether the expenditure claimed by the assessee as incurred towards scientific research is eligible for weighted deduction since the assessee s facility from where the expenditure is incurred is approved by DSIR. As already seen, once the assessee submits the details of expenditure as certified by the Director and the Auditor, the DSIR is required to certify the same in Form 3CL certifying the amount eligible for weighted deduction. It is very relevant here to note that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agreement has been executed, under which recognition has been given to the facility, then 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 hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by ₹ 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed. 11.6.9 We also notice that the coordinate bench of the Tribunal in the case of UltraTech Cement Ltd. vs DCIT [2022] 139 taxmann.com 151 (Mumbai - Trib.) has considered a similar issue and held that 112. We have heard the rival contentions and perused the material on record. To understand the controversy, it's important to examine the requirements of section 35(2AB)(1) which reads as under : (2AB)(1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Indfrag Limited v. ACIT (supra) have clearly held that prior to 1-7-2016 Form 3CL has no legal sanctity and it is only w.e.f. 1-7-2016 with the amendment to Rule 6(7A) of the I.T. Rules, that the quantification of weighted deduction u/s 35(2AB) of the I.T. Act has significance. Therefore, we hold that the deduction u/s 35(2AB) of the I.T. Act be granted as claimed by the assessee instead of restricting it to the quantum of claim as mentioned in .Form No. 3CL by the prescribed authority. It is ordered accordingly. 115. As can be noted above, the Tribunal relied on another decision of the same Bench in the case of Mahindra Electric Mobility Ltd. v. Asstt.CIT [ITA No. 641 (Bang.) of 2017, dated 14-9-2018] wherein it was observed as under: 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the assessee Company on this ground and direct the AO to delete the disallowance in this regard. 11.6.11 A similar view is held by the coordinate bench in assessee s own case in earlier assessment years. In view of these discussions and respectfully following the above judicial pronouncements we hold that the assessee should be allowed the weighted deduction as has been claimed in the return of income and accordingly direct the assessing officer to delete the disallowance made in this regard. 11.7 Additional Ground- Credit for advance tax short granted. 11.7.1 The Ld.AR submitted that the Assessing Officer did not grant credit for full amount of advance-tax paid by the assessee and prayed for a direction in this regard. We accordingly direct the Assessing Officer to examine the facts and allow credit accordingly. 11.8 Additional Ground 3 : Levy of interest under section 234C 11.8.1 In this regard, it is submitted that the interest under section 234C is leviable on the returned income whereas the Assessing Officer has charged the same on the assessed income and prayed for a direction in this regard. Accordingly, we direct the Assessing Officer to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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