Minilec India Pvt.Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 14, Pune

ITA 1284/PUN/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1513 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 06-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: CHAPTER IV
• Section: 43

Judgement Text

आयकर अपीलीय अिधकरण “ए” Ɋायपीठ पुणे मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपीलसं. / ITA No.1284/PUN/2018 िनधाᭅरणवषᭅ / Assessment Year : 2015-16 Milinec India Pvt. Ltd., 1073/1-2-3, Mulshi Pirangut, Mutha Road, Mulshi, Pune – 412111. PAN: AABCM 2682 E Vs . The DCIT, Circle-14, Pune. Appellant/ Assessee Respondent /Revenue Assessee by Shri Kishor B Phadke – AR Revenue by Shri S P Walimbe – DR Date of hearing 11/08/2022 Date of pronouncement 29/08/2022 आदेश/ ORDER Per S.S.Godara, JM: This assessee’s appeal for Assessment Year 2015-16 is directed against the Commissioner of Income Tax(Appeals)-7, Pune’s order dated 27.04.2018 passed in appeal no.PN/CIT(A)- 7/Wd-14(4)/10216/2017-18, in proceedings u/s.143(3) of the Income Tax Act, 1961 [in short “the Act”]. Heard both the parties. Case file perused. 2. The assessee’s sole substantive grievance raised in the instant appeal challenges correctness of both the lower authorities action declining its section 35(2AB) “in house” R & D expenditure’s weighted deduction claim of Rs.15,44,990/- in the course of ITA No.1284/PUN/2018 for A.Y. 2015-16 (A) Milinec India Pvt. Ltd., 2 assessment dated 15.12.2017 and upheld in the CIT(A)’s lower appellate order as follows: “5.3 I have carefully considered the facts of the case and law apparent from records. The assessee has e-filed return of income on 19/09/2015 declaring total income of Rs. NIL. The AO noted that the assessee has claimed deduction u/s. 35(2AB) of Rs.1,88,33,980/-. The DSIR has approved expenditure of Rs. 78.72lakhs instead of Rs.94,16,990/- R & D Expenses shown by the assessee. The AO sought explanation of the assessee and after considering the submission of the assessee the AO disallowed the difference of the expenses of Rs.15,44,990/- and added to the total income of the assessee. 5.4 The appellant submitted that even for balance amount of Rs.15,44,990/- deduction u/s. 35(2AB) be allowed and DSIR cannot put any restriction. The appellant relied on the judicial pronouncements mentioned in para 5.2. 5.5 Ostensibly, the appellant is in receipt of Form 3CL which has approved the expenditure of Rs.78.72 lakhs for weighted deduction u/s.35(2AB). The appellant claims that it has made expenditure of Rs.94,16,990/- on scientific research. The appellant intends to claim deduction on full amount of Rs.94,16,990/- without support of Form 3CL/3CM. The appellant has not demonstrated any application to the DSIR to modify the amount approved of Rs.78.72!akhs. If there is any modification in Form 3CL/Form 3CM the same has to be corrected by the DSIR The appellant could not get any such correction from the DSIR. Therefore, the contention of the appellant deserves to be rejected. 5.6 Even after getting the Form 3CM the expenditure made by the appellant are subject to scrutiny of the AO and if anything contrary to Form 3CM the AO has to refer the matter to the CBDT for examination of the DSIR in accordance with provisions of section 35(3) of the I. T. Act, 1961. The provisions of section35{3) reads as under. "[(3) If any question arises under this section as to whether, and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research, the Board shall refer the question to— [a] the Central Government, when such question relates to any activity under clauses (ii) and (iii) of sub-section (1), and its decision shall be final; [b] the prescribed authority 94 , when such question relates ITA No.1284/PUN/2018 for A.Y. 2015-16 (A) Milinec India Pvt. Ltd., 3 to any activity other than the activity specified in clause (a), whose decision shall be final.]" This depicts that to what extent activity constituted scientific research has to be decided by prescribed authority and prescribed authority is mentioned in Rule-6 (1B)for the purpose of section 35(2AB) as the secretary department of Scientific and industrial Research. The form 3CL is to be signed by- the prescribed authority. Further, Rule 6(7A)(b) clearly mentions that the facility for routine activity will not be considered as scientific research. 5.7 The applicability of provisions of section 35(3) has been elaborated by the Hon. Karnataka High Court in case of Tejas Networks Ltd. vs. DCIT reported in 60 taxman.com 309 wherein it has been held that: " Section 35, read with section 43 of the Income-tax Act, 1961 - Scientific research expenditure (Sub-section (2AB)) - Assessment year 2009-10 - Whether where assessee claimed deduction under section 35(2AB), pursuant to certificate issued by prescribed i.e., Department of Scientific and Industrial Research (DSIR), approving such claim, Assessing Officer could not have denied weighted deduction under section 35(2AB) in respect of scientific expenditure - Held, yes - Whether Assessing Officer cannot sit in judgment over report submitted by prescribed authority - Held, yes - Whether however, where Assessing Officer does not accept claim of assessee made under section 35{2AB), he should refer matter to Board, which will then refer question to prescribed authority - Held, yes - Whether since issue of jurisdiction of Assessing Officer was under consideration, petition could not have been dismissed on ground of availability of alternate remedy - Held, yes [Paras 19, 21 & 27] [in favour of assessee]" It has been further held that: "In the event of any question would arise before the Assessing Officer under section 35 as to whether amounts certified by the prescribed authority is eligible for being allowed as expenditure and to what extent and whether such activity constitutes or constituted, or any asset is or was being used for scientific research in that regard, then Assessing Officer has to request the Board to refer such question to the prescribed authority as provided under clause (b) of section 35{3). In other words, the correctness or otherwise of the order passed by the prescribed authority is not examined by the Assessing Officer or by the Income-tax Authority and this exercise is outsourced by the Income-tax ITA No.1284/PUN/2018 for A.Y. 2015-16 (A) Milinec India Pvt. Ltd., 4 Department and same is being done by the prescribed authority namely, Department of Scientific and Industrial Research. [Para 20] Thus, reading of section 35(3) would clearly indicate that where the Assessing Officer does not accept the claim of the assessee made under section 35(2AB), he has to refer the matter to the Board, which in turn, will refer the question to the prescribed authority. The decision of the prescribed authority would be final as could be seen from clause (b) of sub-section (3) of section 35. Thus, it would emerge from above analysis that neither the Assessing Officer nor the Board is competent to take any decision on any such controversy relating to report and approval granted by 'prescribed authority' as it involves expert view or opinion. The controversy arising out of certificate issued by the prescribed authority if any, has to be referred to the prescribed authority by the Board on such doubt being raised by Assessing Officer and also on his request. It is the prescribed authority alone which would be competent to take a decision with regard to correctness or otherwise of its order of approval granted in Form No. 3CL as prescribed under section 35(2AB) read with rule 7A of the rules. [Para 21] 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, certifying the total! R&D expenditure (excluding land and buildings) as prescribed under section 35(2AB). Thus, 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 the 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. 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 to undertake the exercise of ITA No.1284/PUN/2018 for A.Y. 2015-16 (A) Milinec India Pvt. Ltd., 5 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 (3) to section 35 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 required to refer such question to the Board for being referred to the 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 undisputediy, 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. [Para 27]" If contention of the appellant is accepted the provisions of section 35 in respect of allowing of deduction for expenditure on scientific search would otiose and appellant would be free to claim deduction u/s. 35(2AB) without intervention of the DSIR/AO/Board/Central Government. Such contention deserves to be rejected in totality. 5.8 The contention or the appellant is that the deduction should be allowed beyond the amount mentioned in Form No. 3CL/3CK/I without challenging the contends of the Form 3CL/3CM. The DSIR has inherent power under Rule 6(7A)(b} to disallow certain expenditure which is not related to research. Therefore, the appellant intends to relaxation of the procedures for obtaining corrected Form 3CL/3CM. 5.9 The powers of relaxation in procedural lapse in claiming deduction u/s.35(2AB) or in obtaining Form 3CL/Form 3CM is vested with the Parliament of India. In this regard provisions of section 119(2)(c) are very specific. The provisions of section 119(2)(c) reads as under. "[(c) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by genera! or special order for reasons to be specified therein, relax any ITA No.1284/PUN/2018 for A.Y. 2015-16 (A) Milinec India Pvt. Ltd., 6 requirement contained in any of the provisions of Chapter IV or Chapter VI-A, where the assessee has failed to comply with any requirement specified in such provision for claiming deduction thereunder, subject to the following conditions, namely:— (i) the default in complying with such requirement was due to circumstances beyond the control of the assessee; and (ii) the assessee has complied with such requirement before the completion of assessment in relation to the previous year in which such deduction is claimed: Provided that the Central Government shall cause every order issued under this clause to be laid before each House of Parliament.] ” The appellant is claiming deduction u/s.35(2AB) which is part of the chapter IV of the I.T.Act, 1961 and relaxation being sought by the appellant to claim deduction u/s.35(2AB) on more amount than mentioned in Form 3CM without further approval of DSIR is clearly in the ambit of the provisions of section 119(2)(c). This is clearly shows that any relaxation of any requirement in section 35 and Rule 6 consequently in form 3CL/CM is governed by provisions of section 119(2)(c). The powers of relaxation is vested with the Central Government which has to be ratified by the each house of Parliament. Therefore, it is beyond the jurisdiction of the appellate authority to grant any relaxation as sought by the appellant. 5.10 In view of the above, action of the AO in disallowing deduction of Rs.15,44,990/- u/s 35(2AB) of I.T.Act, 1961 is upheld and ground No.1 of the appeal is dismissed.” 3. Suffice to say, there is any hardly any dispute between the parties that both the lower authorities have rejected the assessee’s impugned sec 35(2AB) claim in light of the fact that the prescribed authority “DSIR” has approved the same to the tune of Rs.78.72 lakhs than that in issue of Rs.94,16,990/-. That being the case, we quote [2021] 190 ITD 852 (Pune) MAHLE Behr India (P.) Ltd. Vs. DCITand [2021] 133 taxmann.com 71 (Pune Tribunal) DCIT Vs. ITA No.1284/PUN/2018 for A.Y. 2015-16 (A) Milinec India Pvt. Ltd., 7 Force Motors Ltd., holding that such a pre-condition of DSIR’s quantification is not applicable retrospectively as per rule 6 (7A) of the Income Tax Rules amended with prospective effect from 01.07.2016 onwards whereas we are in A.Y. 2015-16 only. Faced with this situation, we accept the assessee’s instant sole substantive grievance claiming section 35(2AB) weighted deduction of Rs.15,44,990/- in issue. Necessary computation shall follow as per law. 4. This assessee’s appeal is allowed. Order pronounced in the open Court on 29 th August, 2022. Sd/- Sd/- (DR. DIPAK P. RIPOTE (S.S.GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 th Aug, 2022/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.