DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI V. MRF LIMITED, CHENNAI

ITA 55/CHNY/2025

AI Insights

The case involves appeals by the Revenue against the order of the CIT(A), Chennai, which allowed the deduction under section 35(2AB) of the Income Tax Act for M/s. MRF Ltd. for the Assessment Years 2013-14 and 2014-15. The main issue was the disallowance of deductions made by the AO based on a survey conducted under section 133A, which the CIT(A) overturned, citing the DSIR's certification in Form No.3CL. The Tribunal examined the precedents and the statutory provisions, concluding that the AO's role does not extend to overriding the expert authority's certification, thus dismissing the Revenue's appeals.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314293 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Other Referred Cases: Tejas Networks Ltd. vs. ITA No.1073 of 2008, Mastek Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. CLEMENT RAMESH
• Assessee Lawyers: VIKRAM VIJAYARAGHAVAN
• Keywords: Set aside; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 131; 133A

Judgement Text

"आयकर अपीलीय अिधकरण, ’सी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी जगदीश, लेखा सद क े सम\u0015 BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.54 & 55/Chny/2025 िनधा\u000eरणवष\u000e/Assessment Years: 2013-14 & 2014-15 The DCIT, Central Circle-3(3), Chennai. v. M/s.MRF Ltd., No.114, Greams Road, S.O. Nungambakkam, Chennai-600 006. [PAN: AAACM 4154 G] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) Department by : Mr.R. Clement Ramesh Kumar, CIT Assessee by : Mr.Vikram Vijayaraghavan, Advocate सुनवाईक तारीख/Date of Hearing : 26.03.2025 घोषणाक तारीख /Date of Pronouncement : 05.05.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals), (hereinafter referred to as “the Ld.CIT(A)”), Chennai-20, both dated 28.10.2024 for the Assessment Years (hereinafter referred to as \"AY”) 2013-14 & 2014-15 respectively. Both sides agreed that the issues permeating in both the appeals are identical and therefore, appeal for AY 2013-14 is taken as lead case, result of which will be followed for AY 2014-15. ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 2 :: 2. At the outset, the Revenue’s appeal in ITA No.54/Chny/2025, is delayed by ‘9’ days, for which, the DCIT, Central Circle-3(3), Chennai, has filed an affidavit for condonation of delay, to which, the Ld.Counsel of the assessee has not raised any serious objection. Consequently, the delay of ‘9’ days in filing of the appeal stands condoned and the appeal filed by the Revenue is taken up for hearing on merits. 3. Grounds of appeal raised by the Revenue for AY 2013-14 are as under: 1. The order of the Id. Commissioner of I.T. (Appeals) is opposed to law and Facts of the case. 2. The Ld. CIT(A) erred in allowing the disallowance of deduction u/s 35(2AB) made by the AO to the tune of Rs. 17,54,07,659/- for the A.Y. 2013-14. 3. The Ld. CIT(A) erred in directing the AO to allow the claim of deduction u/s 35(2AB) as per the Form 3CL issued by the DSIR without considering the fact that the addition was made based on findings of the survey u/s 133A in the case of the Assessee. 4. The Ld. CIT(A) erred in relying on the judgment of Hon'ble ITAT in assessee's own case of the Asst Year 2017-18 to 2019-20 in ITA (TP) A. No. 64 & 65/Chny/2022 & 41/Chny/2023 dated 20.09.2024, which erroneously held that the AO cannot sit in judgment over the report submitted by the prescribed Authority in Form 3CL. 5. The Ld.CIT(A) failed to appreciate the fact that the certification of DSIR is basically involved, certification of R & D facility and the AO is not precluded from verifying the amount of weighted deduction after examination of the facts of the case. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of Ld. CIT(A) may be set aside on this ground and that of the Assessing Officer be restored. 4. At the outset, it is noted that the main grievance of the Revenue is against the action of the Ld.CIT(A) allowing deduction u/s.35(2AB) of the ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 3 :: Income Tax Act, 1961 (hereinafter referred to as ‘the Act‘) for both the assessment years despite the AO disallowing Rs.17,54,07,659/- for AY 2013-14; and Rs.34,79,69,346/- for AY 2014-15. The main grievance as evidenced from a reading of the grounds of appeal raised by the Revenue are that the disallowance made by the AO was based on the finding of the survey team u/s.133A of the Act conducted in the premise of the assessee at Thiruvottiyur & Trichy on 20.11.2019; Consequently, the Ld.CIT(A) erred in following the decision of this Tribunal in the assessee’s own case for AY 2017-18, 2018-19 & 2019-20 wherein the Tribunal held that the AO can’t sit in judgment over the report submitted by the DSIR in Form No.3CL. 5. The brief facts for AY 2013-14 are that the assessee company is engaged in the business of manufacturing and selling of automobiles tyres, tubes, flaps and other rubber products. The assessee company is noted to have filed its original Return of Income (RoI) for the AY 2013-14 on 28.11.2013 admitting total income of Rs.790,92,17,440/-. Later, the case was selected for scrutiny under CASS and assessment proceedings was completed u/s.143(3) r.w.s.92CA of the Act on 29.12.2016 assessing total income of Rs.861,75,63,920/-. Later, the case was re-opened u/s.147 of the Act and reassessment proceedings had been completed vide order passed u/s.143(3) r.w.s.147 of the Act on 03.12.2019 revising ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 4 :: the income at Rs. 837,17,84,527/-. Thereafter, a survey operation u/s.133A of the Act was carried out at the premises of the assessee company on 20.11.2019 and pursuant to it, inter-alia the assessment for AYs 2013-14 & 2014-15 was re-opened by issue of notice u/s.148 of the Act and after hearing the assessee on the issue of deduction claimed u/s.35(2AB) of the Act, the AO is noted to have made disallowance of deduction claimed u/s.35(2AB) of the Act to the tune of Rs.35,63,69,370/- for AY 2013-14 [and for AY 2014-15 similar disallowance was made to the tune of Rs.34,79,69,346/-]. 6. Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who was pleased to delete the disallowance/addition made in respect of the deduction claimed u/s.35(2AB) of the Act. 7. Aggrieved, the Revenue is in appeals before this Tribunal. 8. We have heard both the parties and perused the material available on record. We note that pursuant to the survey u/s.133A of the Act carried out at the business premise of the assessee on 20.11.2019, assessment of the assessee was re-opened by taking note of certain facts discovered by the survey team that the assessee was not doing any high- end research & development in its R & D Unit at Thiruvottiyur/Trichy which finding was based on the statement made by Shri Mohan Kurian, ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 5 :: Vice President [Materials] in his statement recorded on 22.11.2019 wherein he had purportedly admitted that R & D Lab was mainly for sample testing for various vendors and which was for vendor selection. According to the AO, this statement given goes on to show that the assessee’s R & D Lab was not doing any high-end R & D. Further, according to the AO, the survey team has found that the concerned officials doesn’t possess required technical knowledge/expertise. Therefore, the AO disallowed 70% of the weighted deduction claimed towards manpower employed which works out to Rs.18,09,61,711/- [70% of the weighted deduction towards manpower] and likewise, reduced claim at Rs.25,85,16,730/- in respect of its R & D Unit, Thiruvottiyur. Further, according to the AO, the assessee has claimed R & D expenses at Thiruvottiyur Unit without doing any R & D work by observing that the assessee company was not doing any rethreading of tyres but only manufacturing the same. Thus, the AO concluded that the assessee didn’t incur any expenditure on scientific research/in-house R & D as per sec.35(2AB) of the Act. Therefore, 50% of the weighted deduction claimed u/s.35(2AB) of the Act [other than manpower] in respect of the R & D at Thiruvottiyur Unit to the tune of Rs.17,54,07,659/- [50% of the weighted deduction of Rs.35,08,15,318/- was disallowed]. Thus, he framed the re-assessment order on 30.03.2023 by disallowing total ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 6 :: deduction u/s.35(2AB) of the Act to the tune of Rs.35,63,69,370/- [Rs.18,09,61,711/- plus Rs.17,54,07,659/-]. 9. On appeal, the Ld.CIT(A) noted that the assessee had claimed an amount of Rs.60,93,32,048/- as weighted deduction u/s.35(2AB) of the Act and that out of it, prescribed authority for approving the deduction u/s.35(2AB) of the Act i.e. the Department of Scientific & Industrial Research (DSIR) has given approval in Form No.3CL on 07.05.2014 for an amount of Rs.58,68,88,613/- and thus, the AO during the original assessment u/s.143(3) r.w.s. 92CA of the Act dated 29.12.2016 has disallowed an amount of Rs.2,24,43,435/- [Rs.60,93,32,048 minus Rs.58,68,88,613/-]. The assessee urged before the Ld.CIT(A) that the AO couldn’t have tinkered with the approval given by the prescribed authority as per the Act, which is the prescribed expert body i.e. DSIR; and couldn’t have disallowed weighted deduction as approved by it (DSIR) in Form No.3CL. The assessee also brought to the notice of the Ld.CIT(A) that this Tribunal in the assessee’s own case for AYs 2017-18 to 2019-20 [IT (TP) A No.64 & 65/Chny/2022 & 41/Chny/2023 dated 20.09.2024] has held that deduction u/s.35(2AB) of the Act claimed by the assessee needs to be allowed in accordance with Form No.3CL issued by the DSIR for the respective years and after reproducing certain relevant portions of the Tribunal order on this issue, the Ld.CIT(A) has deleted the ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 7 :: disallowance/addition made on this score of Rs.35,63,69,370/- for AY 2013-14 and similarly, directed deletion of Rs.34,79,69,346/- for AY 2014-15. 10. Having carefully gone through the impugned order as well as the order passed by the Tribunal in the assessee’s own case for AYs 2017-18 to 2019-20 (supra), we find that the Tribunal had analyzed in-depth and thread-bare looked into the similar/identical disallowance made by the AO in respect of the claim for weighted deduction u/s.35(2AB) of the Act in respect of its R & D Unit at Thiruvottiyur/Trichy, albeit, for those captioned years, but found to be on similar reasoning as noted in the present case, wherein on the basis of survey which took place on the premises of the assessee on 20.11.2019 similar disallowance was made by the AO for AY 2017-18 to 2019-20. On this issue, the Tribunal is noted to have discussed about the issue [regarding disallowance of claim made by the assessee u/s.35(2AB) of the Act from Page Nos.27 to 58 of its order] and has considered the following issues (i) disallowance on the basis that the assessee claimed deduction with respect to partially constructed building in Trichy R&D Unit (ii) disallowance on the basis that assessee is not doing any high-end R & D activities at Thiruvottiyur R & D Unit [based on the statement of Shri Mohan Kurian, Vice President, on the ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 8 :: basis of which, the AO in the present case has also made disallowance] and the Tribunal is noted to have discussed about this issue as under: 12.5 Issue No.2: Disallowance on the basis that the Appellant is not doing any high-end R&D activities in the Thiruvottiyur R&D unit. Contention of AO/DRP: The AO has come to the conclusion that there is no high-end R&D activity carried on in Thiruvottiyur R&D unit of the Appellant and only sample testing activities were carried out. For this he relies on a statement made by Mr. Mohan Kurian during the survey proceedings (Pg No. 571 of the factual paper book). Relevant extracts of the final order: \"Shri. Mohan Kurian, Vice-president, Procurement operation of MRF Ltd., Chennai, stated in his statement recorded u/s. 131 of Income tax Act, 1961 on 22.11.2019 that the R&D Lab were meant mainly for sample testing for various vendors and this resulted in only vendor selection which is against the guidelines laid down by DSIR\" - Pg No. 25 and 26 of the final order. Relevant extracts of the DRP order: \"Having perused the submissions of the assessee and the conclusions arrived at by the AO, the Panel is of the opinion that although the prescribed Authority for quantification of the Expenditure eligible for weighted deduction u/s.35(2AB) of the Act is DSIR, the findings of the Survey carried out by the Department u/s 133 A cannot be ignored.\" - Para No. 10.5 in Pg No. 36 and 37 of the DRP order. 12.5.1 The Ld.AR submitted that it is not the jurisdiction of the AO to sit on judgment of what constitutes high-end R&D activity and what doesn't. This is exactly why the DSIR exists and for the AO to superimpose and substitute the DSIR is beyond the provisions of the Act read with Rules. It is also pertinent to mention that the assessee as part of the approval by DSIR must submit reports on the activities undertaken in their R&D Unit every year. There is no finding by the DSIR that the activities carried out by the Appellant in their R&D Unit is of inferior quality as has been erroneously deduced by the AO based on his own interpretation of survey statements. Therefore, there is no basis for the AO to conclude that there is no high-end R&D activity in the Thiruvottiyur R&D unit. 12.5.2 Further, the Ld. AR argued that the sworn statement relied on by the AO deals with an entirely different issue i.e., transaction of the assessee with its subsidiary towards purchase of raw materials. The person examined was in charge of acquisition of raw materials for the assessee company. In Question No.5 of the statement recorded (Pg No. 572 of the factual paper book) requires Mr.Mohan Kurian to explain in detail the role of the assessee in procuring materials through their Singapore subsidiary. In fact, in none of the questions, there is any reference to activity of the R&D by the assessee. Therefore, the Ld.AR stated that it is not clear as to how from these queries regarding purchase of raw material, can the AO conclude that there is no high- end R&D activity carried on in their Thiruvottiyur R&D Unit. ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 9 :: 11. It is further noted that the Tribunal had considered about the disallowance made on the ground that employees are not technically qualified in the Thiruvottiyur Unit [in the present case also, the AO has made similar allegation and has made disallowance] by holding as under: 12.6 Issue No. 3: Disallowance that the employees are not technically qualified in the Thiruvottiyur unit: Contention of AO/DRP: Following from the above sworn statement by Shri Mohan Kurien(Pg 571 of paper book) supra, the AO has also come to the conclusion that employees are not technically qualified for carrying out R&D facilities. Relevant extracts of the final order: \"The assessee company was not doing any high-end R&D and examination of the man power clearly indicated that the employees who did not possess technical knowledge formed bulk of the man power.\" (Pg No. 26 of the final order). Relevant extracts of the DRP order: \"Having perused the submissions of the assessee and the conclusions arrived at by the AO, the Panel is of the opinion that although the prescribed Authority for quantification of the Expenditure eligible for weighted deduction u/s.35(2AB) is DSIR, the findings of the Survey carried out by the Department u/s 133 A cannot be ignored.\" (Para No. 10.5 in Pg No. 36 and 37 of the DRP order). 12.6.1 The Ld.AR submitted that it is not the jurisdiction of the AO to sit on judgment of what qualification the assessee's personnel ought to have for conducting R&D activity. The capacity and competence of R&D facility and the work carried out was to be approved only by the DSIR and not by some ad-hoc conclusion by the AO. Further, the Ld.AR stated that it is to be noted that the assessee had provided sample Educational certificates wherein the employees have degree in B.E., B.Tech, M.Tech, B.Sc, M.Sc, and Ph.D. etc. (as provided in Page 682 of the factual PB) which is as per DSIR guidelines. The AO thus has grossly erred in making an ad-hoc disallowance in this regard. 12.6.2 Further, the Ld.AR stated that the sworn statement relied by the AO deals with an entirely different issue (i.e., transaction of the assessee with MRF SG) and it does not deal with the technical qualification of the employees of the assessee and hence, the conclusion arrived at by the AO is erroneous. ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 10 :: 12. It is further noted that the Tribunal has dealt with the disallowance made due to capitalization of assets in advance in the Thiruvottiyur R&D Unit by holding as under: 12.7 Issue No.4: Disallowance due to capitalisation of assets in advance in the Thiruvottiyur R&D unit: Contention of AO/DRP: The AO has examined, a sample of TWO machineries purchased for the R&D unit and has stated that the \"acceptance letter\" for the machinery was dated in the next FY, whereas the assessee has capitalised the same in the current year. He has relied on the sworn statement of one Mr. Anindya Kundu. (Question No.2 in Page 584 of the Factual paper book). Relevant extracts of the final order: \"The response of the Shri. AnindyaKundu, Chief accounts Manager of MRF of Thiruvottiyur plant, to Q.2 of statement recorded during the course of survey proceedings u/s. 133A of Income tax Act, 1961 on 21.11.2019 clearly shows that in assets where there were no installation certificates were pushed to be capitalized early in A Y 2017-18 itself.\" (Pg No. 25 of the final order) Relevant extracts of the DRP order: \"Having perused the submissions of the assessee and the conclusions arrived at by the AO, the Panel is of the opinion that although the prescribed Authority for quantification of the Expenditure eligible for weighted deduction u/s.35(2AB) of the Act, is DSIR, the findings of the Survey carried out by the Department u/s.133A of the Act cannot be ignored.\" (Para No. 10.5 in Pg No. 36 and 37 of the DRP order). 12.7.1 The Ld.AR of the assessee stated that it is the assessee's submission that the AO has wrongly interpreted the term 'Acceptance certificate'. The machinery was capitalised on the date of commissioning, and they were put to use from the date of test run and NOT on date of acceptance certificate (which calls for optimum utilization requiring a minimum learning time criteria and hence is always subsequent to put-to-use date (Refer the answer to Q No. 2 given by Mr. AnindyaKundu in Page 584). 12.7.2 The Ld.AR further stated that for one of the machineries chosen by the AO (namely, Aircraft Dynamometer machine)- The Acceptance certificate also was issued during the relevant previous year itself. This has been missed by the AO and it is not clear how the AO concluded that the machinery was not put to use and hence the assessee is not entitled to deduction u/s.35(2AB) of the Act. 12.7.3 The Ld.AR summarised and stated that in any case, as pointed out in the beginning what is to be examined is the expenditure incurred during the year towards capital or revenue expenditure. It does not matter whether machinery was installed and put to use in a particular AY for claiming deduction u/s.35 including Section 35(2AB) as held in the following decisions of the hon’ble courts; ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 11 :: - Rane Brake Linings Ltd [2002] 255 ITR 395 (Madras HC) - Navin Fluorine International Ltd [2019] 178 ITD 201 (Mumbai); - Gujarat Aluminium Extrusions (P.) Ltd [2003] 184 CTR 297 [Guj HC] 12.7.4 In view of the above facts, the Ld.AR stated that the AO having finalized by himself disallowances of R&D expenditure which are without any basis and grossly against the provisions of the Act do not warrant a re-look and hence prayed for deleting the disallowance and the claim as approved by DSIR should be allowed. 12.7.5 Per contra the Ld.DR relied on the orders of the AO / DRP and stated that the data and details found during the survey proceedings cannot be ignored and hence the action of the AO/DRP is in accordance of law and hence the assessee’s ground on this issue be dismissed. 12.7.6 We have heard the rival contentions and gone through the relevant materials and orders of the authorities below. It is admitted fact that, during the Assessment year 2017-18, the assessee has incurred certain expenditure of both revenue and capital in nature, towards its R & D division for the 2 units situated at Thiruvottiyur and Trichy. Accordingly, in the relevant A.Y. 201718 the assessee has claimed weighted deduction of an expenditure on Scientific Research U/s.35(2AB) of the Act, to the tune of Rs.276,70,98,974/- on Revenue Expenditure of Rs.40.63 Crores (Weighted deduction of Rs.81.26 Crores) and Capital Expenditure of Rs.97.72 crores (Weighted deduction of Rs.195.44 Crores) with respect to its 2 R&D units situated at Thiruvottiyur and Trichy. Further, the DSIR as per Form 3CL issued dated 08/04/2021, has approved eligible R & D Expenditure as per Section 35(2AB) of the Act in the case of assessee is as follows: a) Revenue Expenses as certified Rs.34.80 Cr : Weighted deduction Rs.69.60 Crores b) Capital Expenses as certified Rs.97.72 Cr : Weighted deduction Rs.195.44 Crores Total a) + b) Rs.132.53 Cr : Rs.265.04 Crores 12.7.7 We note that the excess claim of weighted revenue expenditure to tune of Rs.5,83,00,000/- made by the assessee has been disallowed by the AO/DRP after considering amounts certified in the Form 3CL issued by the DSIR on 08/04/2021. According to Ld.AR, the AO / DRP has accepted the Form 3CL issued by DSIR dated 08/04/2021 in respect of above disallowance. However, allowing the claim of the assessee in respect of capital expenditure of the 2 units u/s.35(2AB) of the Act, the AO/DRP has rejected the amount certified in Form 3CL issued by DSIR dated 08/04/2021, thereby the order of the lower authorities is disallowing the capital expenditure is erroneous by discriminating in accepting the Form 3CL. Firstly, let us understand the provisions of the Section 35(2AB) of the Act and rules thereon: Manner of verification of the claim under section 35(2AB) by the DSIR The Company had submitted before the learned AO that the provisions of section 35(2AB) of the Act, as applicable for FY 2016-17 (relevant to the subject AY), provides that where a company is engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, incurs any ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 12 :: 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 a authority then, there shall be allowed a deduction of a sum equal to two times of the expenditure so incurred. Further, Rule 6 of the Rules prescribes that the DSIR, which is a nodal body administering various research and development activities in the country, is the authority to review and approve the benefit.” Coming back to the issue of capital expenditure incurred by the assessee for R&D at situated at Thiruvottiyur and Trichy. The assessee has claimed capital expenditure during the A.Y. 2017-18 of Rs.97.72 crores with respect to its 2 R&D units situated at Thiruvottiyur of Rs.65.56 Crores and Trichy of Rs.31.85 Crores. 12.7.8 We note that the assessee’s at Thiruvottiyur R & D unit has applied for and granted recognition initially in the year 1974. Subsequently it had applied for obtaining renewal of recognition multiple times with the latest renewal granted in the year 2018 up to the year 2021. The Trichy R & D unit had applied for and obtained recognition from DSIR in the year 2018 upto the year 2021. During the course of survey proceedings U/s.133A of the Act, held on 21/11/2019 and statements recorded from the employees of the company and revenue authorities obtained certain information in respect of the expenditure incurred by the assessee towards R&D units. The Assessee has furnished before the DSIR, the details of various research projects undertaken by the R&D units, the details of the scientific equipment used by these units, the qualification of people involved in the research and the same have been taken into consideration by the DSIR before granting the above recognition. 12.7.9 According Ld.AR as a part of the recognition process, the DSIR authorities have visited the premises of R&D centres situated at Thiruvottiyur and Trichy in 2018, to satisfy themselves of the research activity carried out by the assessee at such units. The detailed presentation explaining the existing and proposed R&D activities of the assessee was also been made before the DSIR authorities. The assessee also been regularly filing and receiving approval from the DSIR for claiming expenditure under section 35(2AB) in the prescribed format and diligently meeting all the requirements for claiming deduction u/s.35(2AB) by following the procedure/process as under: The recognition and approval of in-house R&D units and approval for the expenses granted by the DSIR is based on certain guidelines laid down by DSIR which includes presence of independent infrastructure, adequate technically qualified manpower, well defined time bound R&D programs and projects, exclusion of certain activities from R&D as a negative list, maintenance of separate books of accounts, third part audit of expenses incurred etc. The details of expenses were filed with DSIR along with an Audit report from an independent accountant in Form 3CLA. Based on review of all information, multiple rounds of clarifications as required, multiple discussions and meetings where the nature· of expenditures were· justified to the DSIR, the authorities provided approval for the amount of capital and revenue expenditure that can be claimed as a deduction in Form 3CL, dated 8 April 2021. 13. It is also noted that the Tribunal has dealt with the action of the lower authorities disallowing capital R & D expenses claimed on account of ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 13 :: commission of machinery subsequently capitalized in Thiruvottiyur Unit and also answered as to whether sec.35 allowable on capital expenditure which is under construction and not put to use, and the Tribunal has referred to several judicial precedents on the subject and thereafter, has allowed the claim of the assessee by holding that “we are of the view that the claim of the assessee is in accordance with sec.35(2AB) of the Act is allowable as per Form No.3CL issued by the DSIR and direct the AO to re- compute the income by allowing the claim of the assessee u/s.35(2AB) of the Act’’. Since we fully concur with the impugned action of the Ld.CIT(A) allowing the appeal of the assessee on the aforesaid issues by following the Tribunal order in the assessee’s own case supra, we don’t give any other reason to uphold the impugned action of Ld.CIT(A) and dismiss the ground of Revenue. 14. Coming to the grievance of the Revenue that the Ld.CIT(A) erred in following the order of this Tribunal in the assessee’s own case supra by observing that the AO can’t sit in judgment over the report submitted by the DSIR in Form No.3CL. In this regard, we must point out to the department that this was not the view of this Tribunal, but the view of the Hon’ble Karnataka High Court in the case of M/s.Tejas Networks Ltd. [ITA No.1073 of 2008], wherein the Hon’ble High Court in similar facts has held that the AO can’t deny the weighted deduction in respect of the claim ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 14 :: made u/s.35(2AB) of the Act when it was supported by the certificate issued by the prescribed authority i.e. DSIR approving such claim; and further observed that the AO can’t sit in judgment over the report submitted by the prescribed authority i.e. DSIR by holding as under:- 25. Insofar as disallowance under Section 35(2AB) of the Act is concerned, the DRP reiterated its above finding and held that where the express provisions of the Act exclude certain kind of expenditure from the purview of Section 35 of the Act, such expenditure cannot be allowed under Section 35 of the Act when such expenditure does not fall within the scope of Section 3 5 of the Act. Second respondent while issuing direction to first respondent on 30.12.2013 under Annexure - Q has held as under: \"12.1 We have carefully gone through the order passed by the Assessing Officer and by the TPO and objections filed by the assessee as well as the records of the case of the assessee. has already been decided in para 11 above that where the express provisions of the Act exclude certain kind of expenditure from the purview of section 3 5 of the Act such expenditure cannot be allowed under section 35 of the Act and when certain expenditure does not fall in the scope of section 35 of the Act, the report of prescribed authority cannot be considered as far as such excluded expenditure is considered. The certificate of the prescribed authority cannot overrule the express provisions of the Act. It has also been held that product development expenditure gives rise to patents on products/processes which are intellectual property rights and therefore such expenditure is capital in nature ( capital work in progress as the project is incomplete) and cannot be allowed u/s 35 of the Act. The arguments of the assessee in the said objection are essentially the same as in objection raised in para 11 above. Therefore principle decided while dealing with such objection squarely applies to this objection also.\" Accordingly, the assessing officer disallowed the deduction claimed by the assessee under Section 35(2AB) of the Act incurred by assessee in a sum of Rs.48,41,82,071/- as against the total deduction Rs.89,35,48,193/- claimed by the assessee under Section 35(2AB) of the Act. 26. A perusal of the report submitted by the prescribed authority to the Director General of Income-Tax (Exemptions) under Section 35(2AB) in Form No. 3CL dated 10.04.2013 vide Annexure-M would clearly indicate that as against claim of Rs. 8,935 lakhs made by the ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 15 :: assessee for weighted deduction in its return of income, the prescribed authority allowed a sum of Rs. 6,904 lakhs only though the Audit Certificate dated 10.04.2013 - Annexure - E issued by the auditor of the assessee indicated Rs.7,009 lakhs as weighted deduction. 27. A plain reading of Section 35(2AB) would clearly indicate that where a company is 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) or in-house research and development facility as approved by the prescribed authority, then, they shall be allowed a deduction of a sum equal to one and a half times of the expenditure so incurred. The word used 'shall' in the above said provision ordinarily mean that it should be understood in the context in which it is used and there cannot be departure in this regard. The said provision would also indicate that such expenditure as approved by the prescribed authority would be entitled for being allowed as a weighted deduction. There being no dispute to the fact that DSIR being the prescribed authority in the instant case, had issued the report in Form No. 3CL –Annexure - M certifying the total R&D expenditure (excluding land and buildings) as prescribed under Section 35(:.for a sum of Rs. 4,601.9 lakhs as against the claim of Rs. 5,957 lakhs made by the assessee in the return of income and as such, neither the second respondent nor first respondent could have sat in judgment over said certificate issued by the prescribed authority. In other words, when the prescribed authority had certified the extent of expenditure which would be allowable, the assessing officer could not have sat in appeal over such certification made by the prescribed authority. The allowability or otherwise of such expenditure cannot be the subject matter of scrutiny by the assessing officer. It would also be required to be noticed that assessing officer would be out of bounds to examine as to whether such expenditure as certified by the prescribed authority can be allowed or disallowed under Section 35 of the Act. In other words, the assessing officer is precluded from examining the correctness or otherwise of the certificate issued by the prescribed authority on the ground that it is either being contrary to facts or contrary to the express provisions of the Act. It would not be out of context to state that when assessee files the report issued by the prescribed authority, as indicated under Section 35(2AB), before the jurisdictional assessing officer and seeks for allowability of such expenditure, the Assessing Officer would be exceeding in his jurisdiction, if he were undertake the exercise of examining as to whether the certificate issued by the prescribed authority is within the parameters of statutory provisions of the Act or otherwise. Keeping in mind that such contingency may arise, Parliament has incorporated sub-section (G) to Section 35 of t he Act which would be a complete answer to such situations. Thus, if any question arises as to what extent, any activity constitutes or constituted or an asset is or was being used for scientific research, then the Assessing Officer would be red to refer such question to the Board for being referred to the ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 16 :: prescribed authority. The decision of the prescribed authority in this regard would be final, inasmuch as, the certification of such expenditure is being examined by an expert body and undisputedly, such exercise has been outsourced by the Revenue under the Act itself, since the prescribed authority being possessed of requisite expertise, it would be in a better position to certify as to whether such expenditure claimed by the assessee under Section 35(2AB) would fall within the said provision or outside. This exercise of examining the correctness of the Certificate issued by the prescribed authority is not available to the Assessing Officer as could be seen from scheme of Section 35 the Act. 28.It is in this background, sub-section (4) of Section 43 will have to be considered, which defines as to what activities would constitute \"scientific research\" as indicated under the said Section namely, Section 43(4). As to whether any expenditure incurred in the acquisition of rights in or arising out of scientific search as indicated in clause (ii) of sub-section (4) of Section 43 is an issue which requires to be examined the prescribed authority itself and it would not be in the domain of the assessing authority to undertake such an exercise. When Section 35(2AB), Section 35(3) and Section 43(4) of the Act are read harmoniously, the irresistible conclusion that has be drawn would be that assessing officer cannot sit in judgment over the re port submitted by the prescribed authority in Form No. 3CL. This view is also supported by the judgment of the High Court of Gujarat in Mastek Ltd.'s case (supra), 29. For the myriad reasons aforestated, Point No. (2) formulated herein above will have to be answered in the affirmative, i.e., in favour of petitioner - assessee and by concluding that the impugned order dated 31.01.2013 - Annexure - R and consequential demand notice dated 31.01.2014; - Annexure - RI are without jurisdiction. 15. Therefore, this ground of the Revenue is found to be misplaced. 16. Coming to the contention of the Ld.DR that the disallowance/addition was made by the AO based on the findings of the survey u/s.133A of the Act, and therefore, Ld CIT(A) erred in following Tribunal order, we observe that the survey in question was dated 20.11.2019 and the assessment years before us is AYs 2013-14 & 2014- 15 and therefore, the factual finding if any made by survey team, would ITA Nos.54 & 55/Chny/2025 (AYs 2013-14 & 2014-15) M/s.MRF Ltd. :: 17 :: not have any impact on the Form No.3CL issued by the DSIR after inspection done in the units dated 07.05.2014. Therefore, we don’t find any infirmity in the action of the Ld.CIT(A) deleting the disallowance/addition made by the AO on this issue. 17. Respectfully following the decision for AY 2013-14, we confirm the action of the Ld.CIT(A) and dismiss the appeal filed by the Revenue. 18. In the result, appeals filed by the Revenue are dismissed. Order pronounced on the 05th day of May, 2025, in Chennai. Sd/- Sd/- (जगदीश) (JAGADISH) लेखा सद /ACCOUNTANT MEMBER (एबी टी. वक ) (ABY T. VARKEY) \u0001याियक सद\bय/JUDICIAL MEMBER चे ई/Chennai, !दनांक/Dated: 05th May, 2025. TLN आदेश क \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ\u0010/Appellant 2. \u0011\u0012थ\u0010/Respondent 3. आयकरआयु\u0018/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u0011ितिनिध/DR 5. गाड फाईल/GF "