CREST SPECIALITY RESINS PRIVATE LIMITED,KHEDA, GUJARAT V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(2), AHMEDABAD (NOW DCIT, CIRCLE 1(1)(1),AHMEDABAD), AHMEDABAD, GUJARAT

ITA 1585/AHD/2024

AI Insights

Crest Speciality Resins Pvt. Ltd. appealed against the orders of the Commissioner of Income Tax (Appeals) for the assessment years 2015-16 and 2016-17, which had disallowed certain deductions claimed under Section 35(2AB) of the Income Tax Act and restricted depreciation on electrical installations. The Tribunal examined the appeals together due to the common facts and issues involved. The main legal issues revolved around the eligibility for weighted deductions on in-house R&D expenditures and the appropriate rate of depreciation for electrical installations. The Tribunal found that the requirements for quantification of expenditures in Form 3CL under Rule 6(7A)(b) of the Income Tax Rules, which were applicable from July 1, 2016, did not retroactively affect the assessment years in question. Additionally, the Tribunal noted that similar issues had been decided in favor of the assessee in previous years, establishing a precedent for allowing the deductions claimed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315720 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Other Referred Cases: Sun Pharmaceuticals Industries vs. Pr. CIT, M/s. Crompton Greaves Ltd. vs. ACIT, Torrent Pharmaceutical Ltd vs. CIT, Cummins India Ltd. v. Dy. CIT, Gujarat Chemical Port Terminal Co. Ltd. vs. DCIT, Schaeffler India Ltd. vs. PCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: AMRIN PATHAN
• Keywords: Revenue expenditure; Bad and doubtful debts; Depreciation; Additional depreciation; Rule of consistency; Capital expenditure; TDS; Maximum Marginal Rate
• Section: 37(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. Nos.1583&1585/Ahd/2024 (Assessment Years: 2015-16 & 2016-17) Crest Speciality Resins Pvt. Ltd., Survey No. 609, Village Kheda, Gujarat-378560 Vs. Assistant Commissioner of Income Tax, Circle-1(1)(2), Ahmedabad (Now Deputy Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad [PAN No.AAACC6333R] (Appellant) .. (Respondent) Appellant by : Ms. Amrin Pathan, A.R Respondent by: Shri B. P. Srivastava, Sr. D.R. Date of Hearing 26.02.2025 Date of Pronouncement 15.05.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: These appeals have been filed by the Assessee against the orders passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide orders dated 09.05.2024 passed for A.Ys. 2015-16 & 2016-17. Since common facts and issues for consideration are involved for both the years under consideration, both appeals filed by the assessee are being taken up together. First we shall deal with Assessee’s Appeal in ITA No. 1583/Ahd/2024 (A.Y. 2015-16) 2. The Assessee has taken the following grounds of appeal:- ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 2– “Ex-Parte Order: 1) The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Center. Delhi (\"NFAC\") (\"the CIT(A)\") erred in fact and in law in passing the order ex-parte. 2) The learned CIT(A) has erred in law and in fact in passing order under section 250 of the Act without granting opportunity of virtual hearing as provided in Clause 12(3) of Faceless Appeal Scheme 2021. Without prejudice to the above: Weighted deduction of science research expenditure on in-house R&D facility 3) The learned CIT(A) has erred in law and in fact in restricting the claim of weighted deduction u/s 35(2AB) of the Act of the expenditure not quantified by the Department of Scientific and industrial research. Government of India (\"DSIR\") in Form 3CL despite of the fact that requirement of quantification in Form 3CL under Rule 6(7A)(b) of the Rules was introduced by the Income Tax (tenth Amendment) Rules, 2016 with effect from 01 .07.2016 and hence, it is not applicable in AY 2015-16. 4) The learned CIT(A) has erred in law and in fact in making the impugned disallowance by not fully considering the submission filed by the Appellant. 5) The learned CIT(A) erred in law and in fact in not allowing the weighted deduction amounting to the tune of Rs. 23,69,208 based on Form 3CL issued by DSIR in the income tax return despite the fact that the identical issue is already been decided by the Hon'ble ITAT in Appellant's own case for the AY 2013-14 and AY 2014-15. Disallowance u/s 40A(2)(b) 6) The learned CIT(A) has erred in law and in fact in confirming the action of the learned Dy. Commissioner of Income Tax, Circle 1(1)(2), Ahmedabad (\"the AO'') in making the disallowance amounting to Rs. 39,87,500/- out of the total commission paid to sister concerns by invoking the provision of section 40A(2)(b) of the Act by relying upon the order passed in AY 2013-14. 7) The learned CIT(A) erred in law and in fact in not appreciating the fact that in Appellant's own case, for the identical payment, the Hon'ble ITAT has deleted the disallowance made in the AY 2013-14 and AY 2014-15 by holding that the Appellant has explained the specific services render to the parties, however the AO has not demonstrated any material to disapprove the genuineness and therefore, the C1T(A) ought not to have confirmed the disallowance 8) The learned CIT(A) has also erred in law and in fact in not appreciating the fact that the impugned disallowance was made u/s 40A(2)(b) of the Act without complying with the requirements of 40A(2) of the Act. ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 3– Depreciation on electrical installation 9) The learned CIT(A) has erred in law and in fact in confirming (he action of the learned AO in making disallowance of the depreciation of Rs, 5,54.435/- claimed on electrical installation by holding electrical installation as electrical fittings. 10) The learned CIT(A) has erred in law and in fact in confirming the action of learned AO in restricting the rate of depreciation on electrical Installations @ 10% despite the fact that same is eligible for depreciation @ 15%. 11) The learned CIT(A) has erred in law and in Fact in confirming the action of learned AO in treating the \"Electrical Installations\" forming part of the block \"Plant and Machinery\" as \"Electrical fittings\" forming part of the block \"Furniture and fittings\". 12) The learned CIT(A) has erred in law and in fact in not allowing depreciation on electrical installation at the rate of 15% as Plant and Machinery despite the fact that the learned CIT(A) has allowed additional depreciation on the same. 13) The learned CIT(A) has erred in law and in fact in not appreciating the fact that the Hon'ble 1TAT in the Appellant's own case for AY 2011-12 on identical issue has allowed depreciation on electrical items as electrical installation at the rate of 15%. Your appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.” Ground Nos. 3 to 5 : Research and Development expenses under Section 35(2AB) of the Act 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing polymer resins and chemicals. During the course of assessment, the Assessing Officer observed that assessee had claimed an amount of Rs. 2,06,38,415/- as deduction under Section 35(2AB) of the Act. On perusal of the certificate issued by DSIR dated 13.11.2014 and also Form 3CL issued by the Secretary, DSIR, the Assessing Officer observed that DSIR had approved revenue expenditure of Rs. 44,33,000/- and capital expenditure of Rs. 35,17,000/- for the impugned assessment year. However, in it’s books of accounts, the assessee had claimed revenue expenses of Rs. 64,80,106/- and capital expenditure of Rs. 43,78,545/- on which weighted deduction @ 200% ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 4– had been availed. Accordingly, the Assessing Officer restricted the claim of deduction under Section 35(2AB) of the Act to Rs. 79,50,000/- and the excess claim of deduction availed by the assessee to the extent of Rs. 47,38,415/- was disallowed and added as income of the assessee. 4. In appeal, Ld. CIT(A) allowed 100% deduction in respect of revenue expenditure of Rs. 15,07,662/- under Section 37(1) of the Act and allowed 100% of the capital expenditure under Section 35(1) of the Act which was not approved by DSIR. However, the Ld. CIT(A) did not grant weighted deduction of 100% on Rs. 15,07,662/- (being the revenue expenditure disallowed by the Assessing Officer) and Rs. 8,61,545/- (being the capital expenditure added by the Assessing Officer), by holding the reasoning given by the Assessing Officer. 5. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A), partly allowing the appeal of the assessee. 6. Before us, the Counsel for the assessee submitted that the requirement of “quantification” of expenditure in Form 3CL under Rule 6(7A)(b) of the Income Tax Rules was introduced w.e.f. 01.07.2016. However, for A.Y. 2015-16, as it stood prior to amendment to Rule 6(7A)(b), the claim of deduction under Section 35(2AB) cannot be denied for non-quantifying the amount in Form 3CL as the said mandate was not applicable for the impugned assessment year i.e. A.Y. 2015-16. It was submitted that the amended norms were applicable w.e.f. 01.07.2016 i.e. from A.Y. 2017-18. In this regard, the Counsel for the assessee submitted that the case of the assessee is covered in it’s own case for A.Y. 2013- 14 (copy of the order was produced before us as Annexure-1). ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 5– 7. In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) in their respective orders. 8. On going through the facts of the instant case we observe that the case of the assessee is covered by the decision of ITAT Ahmedabad Tribunal in assessee’s own case for A.Y. 2013-14 in ITA No. 28/Ahd/2017. It would be reproduced the relevant extracts of the aforesaid decision for ready reference: “6. During the course of appellate proceedings before us, the ld. counsel contended that the issue is covered in favour of the assessee by the decision of the Co-ordinate Bench of the ITAT vide ITA Nos. 1417/Ahd/2016 in the case of Sun Pharmaceuticals Industries vs. Pr. CIT dated 17.05.2019. The ld. counsel has also placed reliance on the decision of Co-ordinate Bench of the ITAT vide ITA Nos. 5295/Mum/2017 & 5390/Mum/2017 in the case of M/s. Crompton Greaves Ltd. vs. ACIT dated 27.09.2019. The ld. counsel has also placed reliance on the decision of Torrent Pharmaceutical Ltd (2009) 28 CCH 781 (Ahmedabad). The ld. counsel submitted that the requirement for quantification of expenditure for claiming deduction was made w.e.f. 1.7.2016 as per the sub-rule (7A) of Rule 6 of Income Tax Rule, 1961. On the other hand, the ld. Departmental Representative has supported the order of lower authorities. 7. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated supra in this order, during the course of appellate proceedings before us, the ld. counsel has referred the aforesaid judicial pronouncement including the decision of ITAT Ahmedabad adjudicated in favour of the assessee. With the assistance of ld. representatives we have gone through the judicial pronouncement in the case of Sun Pharmaceuticals Industries vs. Pr. CIT dated 17.05.2019 of the ITAT Ahmedabad vide ITA No. 1417/Ahd/2016 dated 17-05-2019 wherein identical issue on similar facts has been adjudicated. We have also gone through the decision of the ITAT Mumbai in the case of M/s. Crompton Greaves Ltd. vs. ACIT vide ITA No. 5295/Mum/2017 dated 27.09.2019. The relevant part of the decision is reproduced as under:- “6. Here it is seen that it is the assessee’s stand that it had incurred in-house Scientific Research expenditure (capital and revenue). It had claimed weighted deduction u/s. 35(2)(AB) of the Act, as under: i. Revenue expenditure of Rs.10,05,03,198/- @ 150% - Rs.15,07,54,797/-. ii. Capital expenditure of Rs.1,27,94,490/- @ 150% - Rs.1,91,91,735/-. The assessee, thus, claimed deduction of a sum of Rs.16,99,46,532/-. The details of this expenditure has been filed at Assessee’s Paper Book (APB for short), pgs. 93 to 100. It is the claim of the assessee that this expenditure was deductible u/s.35(2AB) of the Act in computing the total income @ 150% of the actual expenditure. The expenditure was incurred for the Kanjurmarg unit of the company; rather, the ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 6– unit stood approved by the DSIR, in Form No. 3CM, as on 28.08.2008 (APB, pg. 88), as per the requirements of section 35(2AB) of the Act for the period from 01.04.2007 to 31.03.2009. The assessee’s Auditor duly certified the genuineness of such expenditure and its eligibility for weighted deduction u/s. 35(2)(AB), as available at APB pgs. 93 to 100, as also by the tax auditor, as evident from APB pgs. 91 & 92. 7. It was the action of the DSIR in issuing Form No.3CL (APB pgs. 89 & 90), dated 24.08.2010, quantifying the eligible expenditure at Rs.11,04,63,000/-, as against that of Rs.11,32,97,688/-, resulting in a difference of Rs.28,34,688/- , which prompted the A.O. to make the disallowance in question. 8. It is seen that as rightly contended on behalf of the assessee, section 35 of the Act grants deduction for Scientific Research expenditure, under the circumstances prescribed there-under, on compliance of the conditions laid down in various provisions of section 35. Now, whereas in some cases, like those coming under the provisions of sections 35(1)(i) and 35(2AB), a specific approval of quantum of expenditure, by the prescribed authority, is the pre- requisite for deduction, the provisions of section 35(2AB) requires approval for Units and not approval for the quantum of expenditure. For ready reference, section 35(2)(AB) reads as under: Expenditure on scientific research 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 incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in- house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred: Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred. Explanation.—For the purposes of this clause, \"expenditure on scientific research\", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970). (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for cooperation in such research and development facility and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 7– form and within such time as may be prescribed. (5) [***] (6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia) of sub-section (1) in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2008. 9. The operative phrase here is “on in-house research and development facility as approved by the prescribed authority …….”, the word “facility” has been hereby show us to emphasis the point that it is the unit which requires approval of the prescribed authority under this provision. Further, in the memorandum, explaining the provision of section and the notes on the clauses issued at the time of insertion of section 35(2AB) in the Act, copies of both of which have been filed on record before us by the assessee, it has been clearly provided that the deduction would be available to the assessee’s having an approved in-house R & D facility by the prescribed authority. Undisputedly, there is no mention or approval of the quantum of expenditure. 10. Then, as observed by the Ahmedbad Bench of the Tribunal in the case of Sun Pharmaceutical Industries Ltd. Vs. Pr.CIT (2017) 162 ITD 484 as approved by the Hon’ble Gujarat High Court vide its decision reported at 250 taxmann 270, it has been held that the objective of Form 3CL is limited to the forwarding of the intimation of the approval of the unit; that Form No. 3CL is a mere report for intimation of approval of R & D facility. In this regard, as rightly pointed out, such aspect stands confirmed by subrule (7A) of Rule 6 of Income Tax Rules, as within subsisting (now amended w.e.f. 01.07.2016), to provide for quantification of expenditure as well. The Finance Act, 2015 as amended to sub section (3) of section 35 w.e.f. 01.04.2016, providing for furnishing of reports in the manner to be prescribed. It is, thus, w.e.f. 01.04.2016 that the provision has been made for approval of quantum of expenditure, for the first time. 11. Further still, in Pune ITAT decision in the case of Cummins India Ltd. v. Dy. CIT (2018) 96 Taxmann.com 576 (Pune-Trib.), which is a decision directly on the issue at hand, it has been held, inter alia, to the fact that though the Rules stipulate the filing of audit report before the prescribed authority by availing the deduction u/s. 35(2AB) of the Act. The provision of the Act prescribed or approved to be granted by the prescribed authority vis-à-vis the expenditure from year to year; that the amendment was brought in by the Income Tax amendment Rules w.e.f. 01.04.2016, wherein, a 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; that prior to the said amendment, no such procedure; methodology was prescribed; and that therefore, in the absence of any such procedure or methodology, the A.O. had erred in curtailing the expenditure and consequent weighted deduction claimed u/s. 35(2AB) of the Act on the summon that the prescribed authority had approved the part of the expenditure in Form No. 3CL. ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 8– 12. It would also be apt to reproduce here-under the provisions substituted in clause (b) of sub rule (7A) of Rule 6, as brought in by the amendment effective from 01.07.2016 as above: “The prescribed authority shall furnish electronically its report,- (i) in relation to the approval of the in-house research and development facility in Part A of Room No. 3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Income Tax Act, 1961 in Part B of Form No. 3CL.” 13. Hitherto, the provision was as follows: “The prescribed authority shall submit its report in relation to the approval of in-house facility and development facility in Form No. 3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval.” The above also makes it amply clear that prior to the amendment, i.e., upto 30.06.2016, it was not required to quantify the expenditure and it was only w.e.f. 01.07.2016 that this mandate has been put in place. 14. The year under consideration is A.Y. 2009-10 and, for this year, the amendment was not applicable. Therefore, the assessee is right in contending that the non-approval of the expenditure claimed by CSIR did not entitle the A.O. to make the disallowance and the ld. CIT(A) to confirm the same. This does also take care of a without prejudice contentions raised by the assessee, to the fact that deduction of actual expenditure of Rs.28,34,688/- be allowed to the assessee under the provisions of section 35(1)(i) and 35(1)(iv). These provisions of allowing 100% deduction of expenditure on in-house scientific research, irrespective of the approval of the unit and the certification of the expenditure, where the actual expenditure, as in the case of the assessee is verified by the Statutory Auditor and certified by the Independent Auditor and Tax Auditor. 15. The assessee is found correct in contending that the ld. CIT(A) has observed that the extent of the expenditure was never verified by the A.O. Thus, according to the assessee it goes to confirms that the A.O. disallowed the claim without due application of mind. This contention of the assessee is correct, as evident from the assessment order itself, wherein the ground for the disallowance was the non-approval of the expenditure claimed by the DSIR. 16. On behalf of the assessee, another contention has been raised, that the ld. CIT(A) is wrong in observing that during the remand proceedings, the assessee has not objected to the action of the A.O. in making the disallowance u/s. 35(2AB). This, it has been emphasized, that the assessee had always objected to the disallowance before the A.O. as well as the ld. CIT(A). The attention in this regard has been drawn to the grounds taken by the assessee and the submissions raised by the assessee before the ld. CIT(A). It has further been submitted that in the remand proceedings, qua this issue, no enquiry whatsoever had been made by the A.O., notwithstanding the fact that the remand proceedings were proceedings where the assessee was required to ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 9– press his claim afresh, which could have only be done by way of objecting to the action of the A.O. 17. Be that as it may, the disallowance stands objected to by the assessee before us, which issue we have answered in the preceding paragraphs. In view of the above, finding merit in ground no. 1 raised by the assessee, the same is hereby accepted to the reversing order passed by the ld. CIT(A) on this issue and deleting the disallowance of Rs.42,52,032/-, made u/s. 35(2AB) of the Act.” In the above cited findings, the ITAT has also referred the decision of the ITAT, Ahmedabad in the case of Sun Pharmaceutical Ind. Ltd. Vs. Pr. CIT (2017) 162 ITD 484 as upheld by the Hon’ble Gujarat High Court vide its decision reported at 250 taxman 270. In the light of the findings as supra and amendment to sub-section (3) of section 35 w.e.f. 1-04-2016 for furnishing of report, we consider that there is nothing before us on hand differs from the cases cited (supra) so as to take a different view on this issue. Therefore, since the issue on hand being squarely covered following the principle of consistency, we find merit in the submission of the assessee and allowed the claim of deduction. Therefore, this ground of appeal is allowed.” 9. Further, we observe that in the case of Schaeffler India Ltd. vs. PCIT 150 taxmann.com 528 (Ahmedabad – Trib.), while dealing with the similar issue, the ITAT Ahmedabad had made the following observations in this regard: “7. We have heard the rival contentions and perused the material on record. On going through the records of the case, we observe that in the instant facts, the Assessing Officer had made detailed inquiries into the claim of deduction of the assessee u/s. 35(2AB) of the Act. The assessee had filed replies in relation to the queries raised by the ld. Assessing Officer and after considering replies filed by the assessee, the Assessing Officer allowed the claim of the assessee u/s. 35(2AB) of the Act. Therefore, evidently, it is not a case where there was any lack of inquiry on the part of the Assessing Officer regarding claim of deduction u/s. 35(2AB) of the Act. The next issue for consideration is whether the view taken by the ld. Assessing Officer was a legally tenable view or could it be inferred that ld. Assessing Officer had taken an incorrect view in the instant facts and therefore the order passed was erroneous and prejudicial to the interest of the Revenue. We observe that the in the case of Provimi Animal Nutrition India Pvt. Ltd. vs. PCIT Bangalore [2021] 124 taxman.com 73 (Bangalore Trib), the ITAT held that prior 01-07-2016, Form 3CL granting approval by prescribed authority in relation to quantification weighted deduction u/s. 35(2AB) of the Act had no legal sanctity and it was only w.e.f. 01-07-2016 that quantification of weighted deduction u/s. 35(2AB) of the Act is significant. We observe that in the case of Sun Pharmaceutical vs. PCIT [2017] 77 taxman.com 202/162ITD 484 Ahmedabad ITAT held that where assessee had already obtained approval of its in house research and development facility in form 3CM, Commissioner could not revise assessment framed by Assessing Officer allowing deduction u/s. 35(2AB) of the Act merely on the ground ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 10– of non-submission of report of prescribed authority under form 3CL. Further, we observe that the Mumbai ITAT in the case of Reliance Industries Ltd. vs. ACIT [2022] 143 taxman.com 194/[2023] 198 ITD 158 held that amendment to provisions of Rule 6(7A)(b) w.e.f. 01-07-2016 whereby prescribed authority can quantify expenditure eligible for weighted deduction under sub-section (2AB) of section 35, would apply only for assessment year 2017-18. Further, we observe that the Gujarat High Court in the case of CIT vs. Sun pharmaceutical Industries Ltd. [2017] 85 taxmann.com 80/250 Taxman 270 held that where assessee, engaged in research and development on pharmaceutical products, claimed deduction u/s. 35(2AB), in view of fact that research and development facility had been approved by prescribed authority in proper format i.e. Form 3CM merely because said authority failed to send intimation to Department in Form 3CL, it would not be enough to deprive assessee’s claim of deduction.” 10. Accordingly, in light of the facts of the assessee’s case and the judicial precedents referred to above, Ground Nos. 3 to 5 of the assessee’s appeal is allowed. Ground Nos. 6 to 8 : Disallowance under Section 40A(2)(b) of the Act 11. The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the Assessing Officer observed that the assessee had paid commission to Shri Ranajit B. Sen-HUF of Rs.17,00,000/-, Smt. Ami Udeshi of Rs. 8,00,000/-, Shri Prakash R Udeshi-HUF of Rs. 5,31,250/- and Shri Sushantkumar Pramanik-HUF of Rs. 9,56,250/-. The Assessing Officer observed that the aforesaid payment on account of commission was paid by the assessee to related parties and the said payment called for disallowance in view of the provisions of Section 40A(2)(b) of the Act. The Assessing Officer was of the view that the assessee has not been able to produce any information, details or information regarding the genuineness of these payments and was of the view that amounts paid by the assessee to these parties were non-genuine and that these parties were nothing but dummy persons utilized by the assessee in order to manipulate it’s accounts and artificially inflates it’s expenses, for the year under consideration. The Assessing Officer observed that even for A.Y. 2013-14 and 2014-15, the Ld. CIT(A) on identical ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 11– set of facts had confirmed the disallowance of payment made to the same parties. Accordingly, the Assessing Officer disallowed the assessee’s claim for payment of commission of Rs. 39,87,500/- and added the same to the total income of the assessee. 12. In appeal, Ld. CIT(A) confirmed the addition by placing reliance on the order of his predecessor for A.Y. 2013-14. 13. The assessee is in appeal before us against the aforesaid order passed by the Ld. CIT(A), confirming the addition in the hands of the assessee. 14. Before us, the Counsel for the assessee submitted that the issue of allowability of commission has been dealt by ITAT Ahmedabad in assessee’s own case for A.Y. 2013-14 in ITA No. 28/Ahd/2017, wherein the ITAT deleted the disallowance under Section 40A(2)(b) of the Act, with respect to similar commission expenses. Copy of the order passed by the ITAT has been placed on record before us. 15. Further, the Counsel for the assessee submitted that even for A.Y. 2014- 15 the ITAT Ahmedabad in assessee’s own case in ITA No. 2917/Ahd/2017 vide order dated 23.02.2022 deleted similar addition on account of commission payment to sister concerns. Copy of ITAT order for A.Y. 2014-15 has been placed before us for our records. Accordingly, the Counsel for the assessee submitted that since the issue is directly covered in favour of the asessee for immediately preceding assessment years by orders of ITAT Ahmedabad in assessee’s own case, the aforesaid disallowance is no longer sustainable in the eyes of law. ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 12– 16. In response, Ld. D.R. placed reliance on the observations made by the Assessing Officer and Ld. CIT(A) in their respective orders. 17. It would be useful to reproduce the relevant extracts of the order passed by ITAT in assessee’s own case for A.Y. 2013-14 in ITA No. 28/Ahd/2017 vide order dated 31.08.2021, wherein ITAT made the following observations: “8. During the course of assessment, the Assessing Officer noticed that assessee has paid commission to Prakash Udeshi HUF amounting to Rs. 1,50,000/- Ranjeet Sen HUF of Rs. 4 lacs and Sushanto Pramanik HUF of Rs. 2 lacs. The Assessing Officer stated that clarification given by the assessee regarding details of services rendered keeping in view section 10A(2)(b) of the Act was of the general nature. Therefore, claim of commission payment to the amount of Rs. 7,50,000/- was disallowed and added to the total income of the assessee. 9. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has restricted the disallowance to Rs. 6 lacs after deleting the disallowance of commission paid to Prakash Udeshi HUF of Rs. 1,50,000/-. 10. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer has disallowed the expenditure incurred on payment of commission to persons specified u/s. 40A(2)(b) stating that assessee has failed to establish the genuineness of the expenditure. On perusal of the material on record, it is observed that during the course of assessment, the assessee has explained the specific services rendered by the parties to whom the commission was paid along with the detail of their expenses and TDS on the transaction of commission payment. We have also gone through the different pages of the paper book pertaining to the details of commission expenditure furnished by the assessee. In the paper book submitted, the assessee placed copies of invoices raised by the commission agent, along with ledger account, acknowledgement of income tax return for A.Y. 2013-14. The assessee has also enclosed the copies of I.T. returns filed by these parties showing the amount of commission earned in their return of income. It is noticed that Assessing Officer has not made any further verification, investigation and examination from the parties to whom the sales were made through the commission agents to disprove the facts reported by the assessee in its submission. The Assessing Officer has not demonstrated any material or information gathered to disprove the genuineness of the expenditure incurred on commission payment of Rs. 6 lacs, therefore, we consider the decision of the ld. CIT(A) to sustain the disallowance is not justified. Therefore, we do not find any merit in the decision of ld. CIT(A) and the appeal of the assessee is allowed.” ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 13– 18. Further, ITAT Ahmedabad in assessee’s own case for A.Y. 2014-15 in ITA No. 2917/Ahd/2017, allowed the issue in favour of the assessee with the following observations: “3. The brief facts of the case are that the assessee company carries on the business of manufacturing of polymer resins and chemicals. During the year, the assessee paid commission to four parties- Prakash Udeshi HUF (Rs. 3,24,000/-), Ami Udeshi (Rs. 3,24,000/-), Ranajit Sen HUF (Rs. 2,64,000/-) and Sushanta Kumar Pramanik HUF (Rs. 1,48,500/-). The Ld. AO during the course of assessment proceedings asked the assessee to justify such commission payment along-with details of services rendered in view of section 40A(2)(b) of the Act. In response thereto, the assessee vide letter dated 22.11.2016 furnished details of services rendered, which were towards commission for collection of old and doubtful debts, sales promotion, commission for loan syndication through SIDBI. The Ld. AO however rejected the assessee’s claim by holding that no documentary evidence was furnished in support of recovery of outstanding debt, no details of sales promotion actually materializing has been furnished etc. Accordingly, the Ld. AO disallowed assessee’s claim of commission of Rs. 7,36,500/-. The assessee preferred appeal before CIT(A), in which the assessee obtained part relief in respect of two parties. However, in respect of payment made to Ranajit Sen HUF (Rs. 2,64,000/-sales promotion) and Sushanta Pramanik HUF (Rs. 1,48,500/- Sales promotion), the Ld. CIT(A) held that the assessee has not been able to demonstrate how family members of both these HUF are technically qualified to promote the techno-commercial activities of the family business. Secondly, CIT(A) held that the assessee has failed to furnish documentary evidences in respect of its claim of sales affected by receipt of the commission and thirdly, since the HUF’s are not assessed at the maximum marginal rates for tax purposes, this is a ploy by the assessee to reduce incidence of tax. Accordingly, Ld. CIT(A) allowed part relief to the assessee and confirmed the addition in respect of payment to these two parties amounting to Rs. 4,12,500/- u/s 40A(2)(b) of the Act. 4. Before us, the ld. A.R. of the assessee submitted that the issue has been decided in favour of the assessee on identical set of facts in the immediately preceding year A.Y. 2013-14 in assessee’s own case by ITAT Ahmedabad. The assessee submitted that in the preceding year also the same issue for consideration was before ITAT Ahmedabad in respect of commission paid to same parties to whom similar payments for commission has been made in this year as well. The A. R. of the assessee drew our attention to para 4.3 of the assessment order where the ld. Assessing Officer has himself noted that in the immediately preceding year, the Assessing Officer had made disallowance on identical facts which have been confirmed and upheld by the first appellate authority in the preceding year. The assessee drew our attention to para 10 at page no. 8 of ITAT Ahmedabad order of assessee’s own case for the immediately preceding year A.Y. 2013-14. The ld. Departmental Representative placed reliance on the observations of the ld. CIT(A) while confirming the addition for excess commission payments u/s. 40A(2)(b) of the Act. ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 14– 5. We have heard rival contentions and perused the order of ITAT in assessee’s own case for immediately preceding year i.e. A.Y. 2013-14. We note that in the immediately preceding year ITAT Ahmedabad deleted the disallowance of commission u/s.40A(2)(b) of Act the with the following observations. “10. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer has disallowed the expenditure incurred on payment of commission to persons specified u/s. 40A(2)(b) stating that assessee has failed to establish the genuineness of the expenditure. On perusal of the material on record, it is observed that during the course of assessment, the assessee has explained the specific services rendered by the parties to whom the commission was paid along with the detail of their expenses and TDS on the transaction of commission payment. We have also gone through the different pages of the paper book pertaining to the details of commission expenditure furnished by the assessee. In the paper book submitted, the assessee placed copies of invoices raised by the commission agent, along with ledger account, acknowledgement of income tax return for A.Y. 2013-14. The assessee has also enclosed the copies of I.T. returns filed by these parties showing the amount of commission earned in their return of income. It is noticed that Assessing Officer has not made any further verification, investigation and examination from the parties to whom the sales were made through the commission agents to disprove the facts reported by the assessee in its submission. The Assessing Officer has not demonstrated any material or information gathered to disprove the genuineness of the expenditure incurred on commission payment of Rs. 6 lacs, therefore, we consider the decision of the ld. CIT(A) to sustain the disallowance is not justified. Therefore, we do not find any merit in the decision of ld. CIT(A) and the appeal of the assessee is allowed.” In our view, since the facts in the immediately preceding year both in respect of the nature of payments i.e. commission paid as well as the parties to whom the payments were made are identical, we accordingly allow the assessee’s appeal and the disallowance on account of commission u/s. 40A(2)(b) is hereby deleted.” 19. Accordingly, in view of the facts that the issue has been decided in favour of the assessee by the Ahmedabad Tribunal in the assessee’s own case for A.Ys. 2013-14 & 2014-15, Ground Nos. 6 to 8 of the assessee’s appeal is allowed. Ground Nos. 9 to 13: Depreciation on Electrical Installation 20. The brief facts of the case are that the Assessing Officer made a disallowance of Rs. 5,54,435/- being excess depreciation on electric installation, as the Assessing Officer was of the view that electrical installations are liable to ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 15– be included under the head “Furniture & Fittings” and hence depreciation on the same is eligible @ 10%, as against the claim of 15% depreciation by the assessee by treating such electrical installation as part of “Plant and Machinery”. 21. In appeal, Ld. CIT(A) dismissed the appeal of the assessee. 22. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). 23. Before us, the Counsel for the assessee submitted that the assessee had installed new Plant & Machinery during the impugned assessment year. The Counsel for the assessee submitted that these electronic installations are integral part of Plant and Machinery and cannot operate independently. The Counsel for the assessee placed reliance on the case of Gujarat Chemical Port Terminal Co. Ltd. vs. DCIT in ITA No. 394/Srt/2018, wherein vide order dated 05.08.2022, the Ahmedabad Tribunal allowed depreciation on electrical installation / fittings under the block of “Plant and Machinery” @ 15%. The Counsel for the assessee submitted that the case of the assessee is directly covered by the Ahmedabad Tribunal in favour of the assessee on this issue. 24. In response, Ld. DR placed reliance on the observations made by the Ld. CIT(A) in the appellate order. 25. It would be useful to reproduce the relevant extract of the order passed by Ahmedabad Tribunal in the case of Gujarat Chemical Port Terminal Co. Ltd. vs. DCIT in ITA No. 394/Srt/2018, vide order dated 05.08.2022 wherein Ahmedabad Tribunal made the following observation: “During the course of assessment proceedings, it was noticed by the Assessing Officer that depreciation on electrical installation @ 15% was claimed by the assessee as ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 16– against the rate of 10% specifically provided for electrical fittings. In this regard, it was explained by the assessee that the electrical installation being integral part of plant and machinery was eligible for depreciation @ 15% which is applicable to plant and machinery. This explanation of the assessee was not found tenable by the Assessing Officer and he restricted the claim of the assessee for depreciation on electrical installation at 10% instead of 15% claimed by the assessee which resulted in addition of Rs.12,52,745/-. On appeal, the learned CIT(A) confirmed the addition made by the Assessing Officer on this issue following the appellate order of his learned predecessor in assessee’s own case for AY 2012-13. 5. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the learned representatives of both the sides, this issue is squarely covered in favour of the assessee by the decision of Surat Bench of this Tribunal in assessee’s own case for AY 2012-13 rendered vide its order dated 13.12.2019 passed in ITA No. 1888/Ahd/2016 wherein the claim of the assessee for electrical installation @ 15% was allowed by the Tribunal. Since the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to AY 2012-13, we respectfully follow the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case for the immediately preceding year and direct the Assessing Officer to allow the claim of the assessee for depreciation on electrical installation @ 15%.” 26. On going through the facts of the assessee’s case and the judicial precedents cited above, we are of the considered view that electrical installations are part of Plant and Machinery, having no independent use and have been laid only for the purpose of installation of machinery (chemical reactors in the case of the assessee). Accordingly, we are of the view that depreciation on such electrical installations may be allowed @ 15%. 27. In the result, Ground Nos. 9 to 13 of the assessee’s appeal is allowed. Now we shall come to ITA No. 1585/Ahd/2024 (A.Y. 2016-17) 28. The assessee has raised the following additional grounds of appeal: “Ex-Parte Order: 1) The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Center, Delhi (\"NFAC\") (\"the CIT(A)\") erred in fact and in law in passing the order ex-parte. ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 17– 2) The learned CIT(A) has erred in law and in fact in passing order under section 250 of the Act without granting opportunity of virtual hearing as provided in Clause 12(3) of Faceless Appeal Scheme 2021. Without prejudice to the above: Weighted deduction of science research expenditure on in-house R&D facility 3) The learned CIT(A) has erred in law and in fact in restricting the claim of weighted deduction u/s 35(2AB) of the Act quantified by the Department of Scientific and industrial research, Government of India (\"DS1R\") in Form 3CL despite of the fact that requirement of quantification in Form 3CL under Rule 6(7A)(b) of the Rules was introduced by the Income Tax (tenth Amendment) Rules, 2016 with effect from 01.07.2016 and hence, it is applicable from AY 2017-18 onwards only. 4) The learned CIT(A) has erred in law and in fact in making the impugned disallowance by not fully considering the submission filed by the Appellant. 5) The learned CIT(A) has erred in law and in fact in not allowing the weighted deduction amounting to the tune of Rs. 37,49,019 based on Form 3CL issued by DS1R ITR despite of the fact that the identical issue is already been decided by the Hon'ble ITAT in Appellant's own case for the AY AY 2013-14 and AY 2014-15. Depreciation on electrical installation 6) The learned CIT(A) has erred in law and in fact in confirming the action of the learned Asst. Commissioner of Income Tax, Circle 1(1)(2), Ahmedabad (\"the AO\") in making disallowance of the depreciation of Rs. 4,98,971/- claimed on electrical installation by holding electrical installation as electrical fittings. 7) The learned CIT(A) has erred in law and in fact in confirming the action of learned AO in restricting the rate of depreciation on electrical Installations @ 10% despite the fact that same is eligible for depreciation @ 15%. 8) The learned CIT(A) has erred in law and in fact in not appreciating the fact that the \"Electrical Installations\" were closely and intrinsically forming part of the \"Plant and Machinery\" and therefore eligible for depreciation as part of P&M only. The learned AO and CIT(A) both therefore were not right in treating them as \"Furniture and fittings\". 9) The learned CIT(A) has erred in law and in fact in not allowing the claim of the depreciation on electric installation as P&M despite of the fact that the Hon'ble ITAT in the Appellant's own case for AY 2011-12 on identical issue has allowed depreciation on electrical items as - electrical installation at the rate of 15%. Your appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.” ITA Nos. 1583&1585/Ahd/2024 Crest Speciality Resins Pvt. Ltd. vs. ACIT (Now DCIT) Asst. Years –2015-16 & 2016-17 - 18– 29. In view of our observations in the preceding part of the judgment, wherein we have decided these grounds in favour of the assessee while dealing with Grounds 3 to 5 of assessee’s appeal for A.Y. 2015-16 and Grounds 9 to 13 of assessee’s appeal for A.Y. 2015-16 wherein these issues have been decided in favour of the assessee, Grounds 3 to 5 (weighted deduction on in-house R&D facility) and Grounds 6 to 9 (Depreciation on electrical installation) for A.Y. 2016-17 are allowed accordingly. 31. In the result, the appeal of the assessee is allowed for both the years under consideration. This Order is pronounced in the Open Court on 15/05/2025 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 15/05/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 07.05.2025 2. Date on which the typed draft is placed before the Dictating Member 08.05.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 09.05.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement .05.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 15.05.2025 7. Date on which the file goes to the Bench Clerk 15.05.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… "