Biological E Limited , Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(2), Hyderabad

ITA 1590/Hyd/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4507 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2015-2016
• Appeal Filed On: 23-07-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Search and seizure; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 143(3); 14A; 113; 13; 22

Judgement Text

आयकर अपील य अ धकरण , हैदराबाद पीठ म IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA No. 1590/Hyd/2018 ( नधा रण वष / Assessment Year: 2015-16) Biological E Limited, Hyderabad [PAN No. AAACB7873P] Vs. Deputy Commissioner of Income Tax, Cicle-1(2), Hyderabad अपीलाथ / Appellant यथ / Respondent नधा रती वारा/Assessee by: Shri V.Siva Kumar, AR राज व वारा/Revenue by: Shri Kumar Aditya, DR स ु नवाई क तार ख/Date of hearing: 28/06/2022 घोषणा क तार ख/Pronouncement on: 22/07/2022 आदे श / ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order dated 29/05/2018, passed by the Learned Commissioner of Income Tax (Appeals)-1, Hyderabad (“Ld. CIT(A)”) in the case of M/s.Biological E Limited (“the assessee”) for the AY.2015-16, assessee filed this appeal. ITA No.1590/Hyd/2018 Page 2 of 19 2. Brief facts of the case are that the assessee company is engaged in the business of manufacture of vaccines. They have filed their return of income for the assessment year 2015-16 on 30/11/2015 declaring an income of Rs. 3,40,78,69,320/- under the normal provisions of the Income Tax Act, 1961 (for short “the Act”) and book profit of Rs. 4,97,18,42,525/- under section 115 JB of the Act, which was revised on 30/03/2017 declaring an income of Rs. 3,40,44,84,530/- under the normal provisions of the Act and their book profit of Rs. 4,97,18,42,525/- under the provisions of 115 JB of the Act. During the course of assessment, learned Assessing Officer noticed that the assessee had incurred an expenditure of Rs. 74,07,80,093/- towards Research & Development (R&D) and claimed weighted deduction under section 35(2AB) of the Act @ 200% of Rs. 1,47,30,26,932/-. 3. On a perusal of Form 3CL issued by the DSIR, it was noticed that the DSIR has not certified an amount of Rs. 4,66,80,700/- claimed towards ‘rent, electricity and maintenance ‘and since according to section 35(2AB) of the Act only such amount as certified by DSIR is eligible for weighted deduction, learned Assessing Officer allowed only the certified amounts for weighted deduction and disallowed the noncertified expenditure to the tune of Rs. 4,66,80,700/- under section 35(2AB) of the Act, namely, @ 200% to the tune of Rs. 4,66,80,700/-. Learned Assessing Officer further disallowed a sum of Rs. 1,69,108/- by invoking section 14A of the Act read with Rule 8D of the Income Tax Rules 1962 (“the Rules”). 4. Assessment under section 143(3) of the Act was completed by order dated 30/12/2017 determining the income of the assessee at Rs. 68,75,09,065/- by making an addition of Rs. 4,66,80,700/- by disallowing ITA No.1590/Hyd/2018 Page 3 of 19 the excess deduction under section 35 (1) (2AB) of the Act and a sum of Rs. 1,69,108/- by making disallowance under section 14A of the Act read with Rule 8D of the Rules. 5. Aggrieved by such an action of the learned Assessing Officer, assessee preferred an appeal before the Ld. CIT(A). Ld. CIT(A) noted that the units in respect of which the expenditure was claimed as deduction under section 35 (1)(2AB) of the Act are approved as R&D units eligible for deduction under section 35(2AB) of the Act as per the letter dated 21/03/2016 issued by DSIR and the learned Assessing Officer allowed the weighted deduction in respect of the expenditure certified by DSIR, but disallowed the expenditure in respect of ‘rent, electricity and maintenance charges‘ not certified by the DSIR. Ld. CIT(A) upheld the disallowance, holding that the expenditure has to be certified by DSIR for claiming weighted deduction under section 35 (1)(2AB) of the Act. Likewise, Ld. CIT(A) also confirmed the addition made by invoking section 14A of the Act read with Rule 8D of the Rules. 6. Assessee is, therefore, before us in this appeal challenging both the additions. Ld. AR, however, at the time of arguments has given up the challenge to the addition under section 14A of the Act read with Rule 8D of the Rules, but confined only to the disallowance of weighted deduction in respect of such expenditure which is not certified by DSIR. Only argument of the Ld. AR is that under section 35 (1) (2AB) of the Act in respect of the company engaged in the business of biotechnology the in- house R&D facility has to be approved by the prescribed authority but not the expenditure. He placed reliance on the decisions dated 15/05/2018 in Cummins India Limited Vs. DCIT in ITA No. 309/PUN/2014, CIT Vs. Cadila ITA No.1590/Hyd/2018 Page 4 of 19 Healthcare Ltd (2013) 31 taxman.com 300 (Gujarat), CIT VS. Claris Lifesciences Ltd (2008) 174 Taxmann 113 (Gujarat), CIT VS. Sundan Vikas (India) Ltd (2012) 22 Taxmann.com 19 (Delhi), Torrent Pharmaceuticals Ltd. Vs. ACIT in ITA No. 970/AHD/2007, and Bharat Forge Ltd Vs. ACIT in ITA No. 13/PUN/2017 by order dated 14/11/2018 in support of his contention that the requirement under section 35(2AB) of the Act is the approval of the R&D facility but not the expenditure. 7. Per contra, Ld. DR took us through the provisions under section 35(2AB) of the Act and also Rule 6 of the Income Tax Rules, 1962 (“the Rules”) under the caption “prescribed authority for expenditure on scientific research” and to sub Rule 7A thereof. Basing on this, he submits that the approval of expenditure incurred on in-house R&D facility under 35(2AB) of the Act shall be subject to the conditions therein. He also invited our attention to Form 3CL under which a report has to be submitted by the prescribed authority to the Income tax authorities specified under section 35(2AB) of the Act. Basing on these provisions and Form, he argued that not only the R&D facility has to be approved by the prescribed authority, but also the expenditure incurred to be qualified for weighted deduction under section 35(2AB) of the Act has to be approved. He submits that otherwise it would not be possible for the Income tax authorities to deal with the expenditure which is allowable under section 35 (1), 35(2AB) and 37 of the Act separately. His submission is that the expenditure genuinely incurred, but not qualified under section 35(2AB) of the Act being certified by the prescribed authority, would be eligible for deduction under section 35 or section 37 as the case may be. He submits that if no such distinction is maintained, provisions of section 35(2AB) of ITA No.1590/Hyd/2018 Page 5 of 19 the Act will make the provisions under section 35(1) of the Act redundant and such an interpretation shall not be resorted to normally. He submitted that the letter of law is clear and the assessee is not entitled to claim weighted deduction in respect of such expenses which do not Form part of Form 3CL, and such expenses may have to be claimed under other relevant provisions of the Act, like section 35 (1) or section 37 of the Act. 8. Specific contention of the Ld. DR is that in Electronics Corpn. of India Ltd. Vs. ACIT [2012] 28 taxmann.com 280 (Hyd.), a Coordinate Bench of this Tribunal, for the Assessment Year 2007-08, after considering the relevant provisions under section 35(2AB) and 35(3) of the Act held that the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction, and this order dated 25/09/2012 was not brought to the notice of the Bench in the case of Cummins India Ltd (supra) and subsequent decisions following Cummins India Ltd (supra). Ld. DR submitted that the question involved in CIT Vs. Cadila Healthcare Ltd (supra) was whether the explanation to section 35(2AB)(1) of the Act does not require that the expenses included in the said explanation are essentially to be incurred inside and approved in- house research facility. This question was answered in the affirmative by the Hon’ble Bombay High Court. He further submitted that the context of the cases in Claris Lifesciences Ltd (supra) and Sandan Vikas (India) Ltd (supra), that the allowability of the weighted deduction for the period between the agreement of the company with the DSIR and the approval of the DSIR by passing order under Form 3CM of the Rules. He submitted that in this context, the Hon’ble court held that when once the approval is given, the entire expenditure incurred by the assessee on development of ITA No.1590/Hyd/2018 Page 6 of 19 facility has to be allowed for weighted deduction and the Hon’ble courts referred the “expenditure so incurred”. 9. Ld. DR, therefore, submits that in the light of Rule 6 of the Rules the question that needs to be considered is what would amount to “entire expenditure so incurred by the assessee” for the purpose of weighted deduction under section 35(2AB) of the Act, namely, whether it is the expenditure approved by the prescribed authority under Rule 6(7A) of the Rules and reflected in Form 3CL, or it shall include the expenditure incurred by the assessee other than the one on scientific research on in- house R&D facility? At this juncture, he further submitted that in the case of CIT Vs. Vegetable Products Ltd., (1973) 88 ITR 192, the Hon'ble Apex Court held that the duty of the court is to read the section, understand its language and give effect to the same; that if the language is plain the consequences of giving effect to it are not factors to be taken into account in interpreting the provision; that it is for the legislature to step in and remove the absurdity if any; and that if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted. Basing on this, he submitted that it is only when the language of the provision is ambiguous or capable of various interpretations than one, then only the adoption of interpretation which favours the assessee, more particularly in cases of imposition of penalty, will occasion. According to him, the decision of the Hyderabad Bench of the Tribunal in the case of in Electronics Corpn. of India (supra) is in consonance with the provisions of law and the provision under section 35(2AB) of the Act read with Rule 6 of the Rule, as a matter of fact, is very plain. ITA No.1590/Hyd/2018 Page 7 of 19 10. We have gone through the record in the light of the submissions made on either side. The facts are admitted. The in-house R&D facility of the assessee is approved by the DSIR, which is the prescribed authority under Rule 6 of the Rules. Assessee incurred the impugned expenditure in respect of the R&D facility as approved by DSIR. Only dispute is in relation to certain amounts of expenditure incurred by the assessee towards rent, electricity and maintenance charges to the tune of Rs. 4,66,80,700/- which is not reflected in Form 3CL for the assessment year 2015-16. While allowing the expenditure that is reflected in Form 3CL for weighted deduction, learned Assessing Officer disallowed such expenditure which is not there in Form 3CL approved by the DSIR for weighted deduction. According to the assessee, the requirement of law under section 35(2AB) of the Act is that, if the in-house R&D facility is approved by the prescribed authority, there is no further approval required in respect of expenditure. 11. Ld. AR submits that it could be seen from Rule 6 (7A) of the Rules, originally sub Rule 7A (b) thereof, did not speak of quantification of expenditure incurred on in-house R&D facility by the DSIR, and such a question of quantification of the expenditure incurred on in-house R&D facility by the company during the previous year and eligible for weighted deduction under section 35(2AB) of the Act had arisen only subsequent to the amendment of this provision by IT (10 th amendment) Rules, 2016 with effect from 01/07/2016. He submitted that prior to 01/07/2016, there was no power vested in the DSIR to quantify the expenditure after approval of the facility. Basing on this, he developed the argument that the approval that is required under section 35(2AB) of the Act is only in relation to the in-house R&D facility, but not in respect of the expenditure. This argument ITA No.1590/Hyd/2018 Page 8 of 19 necessitates us to look into the provisions of section 35(2AB) of the Act, and Rule 6 of the Rules. 12. Section 35(2AB) of the Act, at relevant time, reads that, - 1. Where a company engaged in the business of ["biotechnology 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 R&D facility as approved by the prescribed authority, then, there shall be allowed a deduction of [a sum equal to [two] times of 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(I0 under any other provision of this Act. 3. No company shall be entitled for deduction under clause (I) unless it enters into an agreement with the prescribed authority for co-operation in such R&D facility and for audit of the accounts maintained for that facility. 4. The prescribed authority shall submit its report in relation to the approval of the said facility to the Director General in such Form and within such time as may be prescribed.] 5. No deduction shall be allowed in respect of the expenditure referred to in clause (I) which is incurred after the 31st day of March.[2012]. 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 (I) which is incurred after the 31st day of March, 2008. Relevant portions of Rule 6, as it stood prior to IT (10 th amendment) Rules, 2016 w.e.f. 01/07/2016, hereunder, - Prescribed authority for expenditure on scientific research. 6. (1) For the purposes of clause (i) of sub-section (1) and sub-section (2A) of section 35, the prescribed authority shall be the Director General (Income-tax Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research, Government of India. ITA No.1590/Hyd/2018 Page 9 of 19 ... ... ... (1B) For the purposes of sub-section (2AB) of section 35, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research. ... ... ... (4) The application required to be furnished by a company under sub-section (2AB) of section 35 shall be in Form No. 3CK. ... ... ... (5A) The prescribed authority shall, if he is satisfied that the conditions provided in this Rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM : Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application.] (7 A) Approval of expenditure incurred on in-house research and develop facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely: _ (a) The facility should not relate purely to market research, sales prom quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed authority shall submit its report in relation to approval of in-house R&D facility in Form 3CL to the Director General (Income-tax Exemptions) within sixty of its granting approval; (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall furnished to the Secretary, Department of Scientific and Industrial Research by 31st day of October of each succeeding year. Explanation: For the purposes of this sub-Rule the expression "audited” means the audit of accounts by an accountant, as defined in Explanation below sub-section (2) of section 288 of the Income- tax, 1961; (d) Assets acquired in respect of development of scientific research development facility shall not be disposed of without the approval of Secretary, Department of Scientific and Industrial Research. 13. Under sub Rule 5A of the Rules, the prescribed authority shall, if he was satisfied that the conditions provided in Rule 6 and in Rule 35(2AB) of the Act are fulfilled, pass an order in writing in Form 3CM. This order ITA No.1590/Hyd/2018 Page 10 of 19 passed in Form 5A is considered to be the approval of the in-house R&D facility. However, under Rule 6(7A) (b) of the Rules the prescribed authority is under obligation to submit the report in relation to the approval in Form 3CL to the Director General (Income tax exemptions) within 60 days of its granting approval. Further under Rule 6 (7A) (c), the company shall maintain a separate account for each approved facility, which shall be audited annually and a copy thereof shall be furnished to the approved authority by 31 st day of October of each succeeding year. The assets acquired in respect of development of scientific R&D facility shall not be disposed of without the approval of the prescribed authority. 14. It is pertinent to note that all these requirements under Rule 6 (7A) of the Rules are the conditions prescribed for approval of expenditure. If it is the intention of the legislature that once the in-house R&D facility is approved, no approval of the expenditure is necessary, then there is no need of incorporating Rule 6(7A) of the Rules at all. It is only after the facility is approved and an order under Form 3CM was passed under Rule 6 (5A) of the Rules, the question of approval of expenditure incurred on in- house R&D facility under Rule 6 (7A) of the Rules arises. 15. Section 35(2AB) of the Act speaks of the allowability of weighted deduction in respect of the expenditure incurred on scientific research on in-house R&D facility as approved by the prescribed authority. It specifically reads that there shall be allowed a weighted deduction of the expenditure so incurred. The expression ‘so incurred‘ has a definite relationship with the approved expenditure incurred in relation to the in- house R&D facility. A perusal of Rule 6 of the Rules clearly indicates that it relates to the prescribed authority for expenditure on scientific research. ITA No.1590/Hyd/2018 Page 11 of 19 It does not say “Prescribed authority for approval of R&D facility”. When the approval of the R&D facility by the prescribed authority is for a specific purpose of allowing weighted deduction in respect of the expenditure incurred on in-house R&D facility, it cannot be said that such an approval is confined merely to the in-house R&D facility, and has nothing to do with the quantum of expenditure. 16. Further the approval of the in-house R&D facility ends with issuance of Form 3CM under sub Rule 5A of Rule 6. If really the intention of the legislature, even prior to 01/07/2016, was to confine to the requirement of approval of the in-house facility, then there is no further need to refer to the approval of expenditure incurred on in-house R&D facility under section 35(2AB) of the Act by way of Rule 6 (7A) of the Rules. By virtue of Rule 6(7A) of the Rules the prescribed authority is put under an obligation to verify whether certain conditions are satisfied before approving the expenditure. Rule 6 speaks of the expenditure and its approval and Form 3CL is only a Form of communication. Section 35(2AB) of the Act deals with the quantum of deduction that is allowable in respect of expenditure on scientific research and in respect of the business of biotechnology. 17. The essence of section 35(2AB) of the Act read with Rule 6 (5A) of the Rules is approval of the in-house R&D facility, whereas 35(2AB) of the Act read with Rule 6(7A) of the Rules is in relation to approval of the expenditure incurred on in-house R&D facility by a company, for weighted deduction. If the approval of the prescribed authority has nothing to do with the expenditure, but its role is confined only in respect of the in-house R&D facility, then the exercise of the prescribed authority under Rule 6(7A) of the Rules would be a redundant exercise because, if we go by the ITA No.1590/Hyd/2018 Page 12 of 19 contention of the assessee, when once the in-house R&D facilities approved, all the expenditure, irrespective of the fact whether or not it is reflected in Form 3CL, would be qualified for weighted deduction. Rule 6 (5A) cannot be read to otiose Rule 6(7A) of the Rules. Both operate in their own fields and to say that the approval required under section 35(2AB) of the Act is only in respect of the in-house R&D facility but not in respect of the expenditure is violence to Rule 6(7A) of the Rules. Who else, other than the prescribed authority, can verify the propriety and benefit of incurring such expenses on the in-house R&D facility? It is only the approval of the prescribed authority that can give authenticity to the desirability of incurring the expenditure and deriving benefit out of such expenditure and that is the reason why Rule 6 prescribes the procedure for approval of the in-house R&D facility and the related expenditure thereon. Lest, as stated supra there is no need of Rule 6(7A) of the Rules at all or Form 3CL, for that matter. Accepting the argument of the Ld. AR, we are afraid, will attribute redundancy to the wisdom of legislature in prescribing Rule 6(7A) of the Rules and Form 3CL. Such an interpretation cannot be accepted because it militates against the purpose of prescribing Rule 6(7A) of the Rules and Form 3CL. 18. The argument of the assessee that the moment the approval is granted by the DSIR to the R&D facility and Form 3CM is issued, the role of DSIR comes to an end, does not come out of the provisions. At the cost of repetition, we would like to emphasise that the technical competency about the need to incur the expenditure or the corresponding benefit derivable by the company rested with the prescribed authority only, and that the reason why Rule 6 and more particularly sub Rule 7A thereof ITA No.1590/Hyd/2018 Page 13 of 19 prescribes the authority for approval of expenditure incurred on the in- house R&D facility and keeps the prescribed authority under an obligation to verify certain factors like the activities of the in-house R&D facility, maintenance of separate accounts, the approval of the expenditure that is eligible for weighted deduction under section 35(2AB) of the Act and to make it apart from the expenditure that is allowable under other provisions of the Act, it is necessary that such an expenditure must be incurred on scientific research on in-house R&D facility by the company engaged in the business of biotechnology, and the authority to determine such expenditure is provided by Rule 6(7A) of the Rules. 19. Even in respect of Form 3CL, even prior to the amendment thereof by the IT (10 th amendment) Rules, 2016 w.e.f. 01/07/2016, vide item No. 9, the report to be submitted by the prescribed authority to the Director General (Income tax exemptions) under section 35(2AB) of the Act, shall contain the total cost of in-house research facility. By way of amendment for the purpose of electronic submission, the Form is made in a detailed manner for incorporation of the total cost of in-house research facility. There are no path breaking changes either in Rule 6(7A) of the Rules or in Form 3CL by way of the IT (10 th Amendment) Rules, 2010, so as to impact the powers and duties of the prescribed authority or the right, liability or disability of the companies incurring expenditure on scientific research on in-house R&D facility. 20. When the entire exercise of section 35(2AB) of the Act read with Rule 6 particularly sub sections 5A and 7A thereof is in respect of the expenditure on scientific research which is allowable with weighted deduction, and the purpose of the prescribed authority is to have the ITA No.1590/Hyd/2018 Page 14 of 19 technical competence to approve the in-house R&D facility and approval of the expenditure incurred in such in-house R&D facility, while looking at sub Rule 5A and 7A of Rule 6, it would be difficult to accept the contention of the assessee that the legislative intent behind section 35(2AB) of the Act read with Rule 6 (5A) and (7A) is that when once the facilities approved, it is the end of the matter and whatever the expenditure that is incurred by the assessee shall be allowed without any question with weighted deduction, thereby attributing redundancy to the exercise under Rule 7A. The expression “so incurred” occurring in section 35(2AB) of the Act denotes that the expenditure has nexus with the in-house R&D facility, and the technical competence to decide whether such nexus exist between the expenditure and the in-house research facility rests with the prescribed authority to be approved under Rule 6(7A) to be communicated in Form 3CL. On a comprehensive reading of the provisions, we understand that the enquiry of the learned Assessing Officer as to any expenses said to have been incurred on the in-house R&D facility for the purpose of weighted deduction does not extend beyond the technically approved expenditure by the prescribed authority under Rule 6(7A) of the Rules and communicated by way of Form 3CL, and it is only in respect of such expenditure which is not to be found in Form 3CL, where the other provisions of the Act are applicable, the learned Assessing Officer’s discretion steps in. 21. At this juncture, we deem it just and necessary to refer to the observations of the Co-ordinate Bench of this Tribunal in Electronics Corpn. of India (supra), which clinches the issue in our opinion. ITA No.1590/Hyd/2018 Page 15 of 19 15. It is the contention of the assessee that the DSIR in giving certificate in Form 3CL had committed a mistake by excluding certain amount of capital expenditure while at the same time reducing the total amount of expenditure by the grant given by the Government which included the very same capital expenditure which was not taken into account in determining the R&D expenditure. According to assessee this would amount to double deduction and hence it is a prima facie mistake in the certificate given by DSIR Therefore the Assessee submitted that their entire claim of Rs. 48,58,76,987 u/s.35(2AB) should be granted. 16. Section 35(2AB) reads as under: 1. Where a company engaged in the business of ["biotechnology 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 R&D facility as approved by the prescribed authority, then, there shall be allowed a deduction of [a sum equal to [two] times of 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(I0 under any other provision of this Act. 3. No company shall be entitled for deduction under clause (I) unless it enters into an agreement with the prescribed authority for co- operation in such R&D facility and for audit of the accounts maintained for that facility. 4. The prescribed authority shall submit its report in relation to the approval of the said facility to the Director General in such Form and within such time as may be prescribed.] 5. No deduction shall be allowed in respect of the expenditure referred to in clause (I) which is incurred after the 31st day of March.[2012]. 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 (I) which is incurred after the 31st day of March, 2008. ITA No.1590/Hyd/2018 Page 16 of 19 17. As per the provisions of sec 35(2AB) of Act as applicable to the relevant Assessment year, the expenditure incurred by the assessee in any approved in-house research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150% of such approved expenditure. Therefore, the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certificate has certified expenditure eligible for weighted deduction as Rs. 3,126.02 lakhs. Therefore, it is not for either the assessing authority or the appellate authority to decide on the expenditure which will be entitled to weighted deduction u/s.35(2AB). In fact, U/s.35(2AB)(3) if any question arises u/s.35 as to whether and if so, what extent any activities constitutes or constituted or any asset was used for scientific research, the matter should be referred to the appropriate authority whose decision will be final. In this case the appropriate Authority is the DSIR. Therefore once the DSIR has certified the quantum of eligible R&D expenditure for the purposes of weighted deduction u/s 35(2AB) the figure cannot be tampered with by ITAT. Even if the assessee is right in that the there is a mistake in the certificate issued by the DSIR, which we don't know, the same can only be rectified by DSIR and not the ITAT in appellate proceedings. We, therefore, uphold the decision of lower authorities in restricting the weighted deduction u/s.35(2AB) to Rs. 46,89,03 lakhs and disallowing sum of Rs. 1,69,73,987 out of the claim made by the assessee. We, however, direct that in case DSIR corrects the amount of R&D expenditure on which the assessee is entitled weighted deduction for the assessment year under appeal, corresponding weighted deduction u/s.35(2AB) shall be granted on receipt of the clarification from DSIR. Consequentially if the assessee is able to prove that any amount of expenditure in their in-house R&D facilities was omitted to be considered by the DSIR for weighted deduction the same may be allowed as a deduction u/s.35/ 37 of the Act. With this observation we dismiss the appeal of the assessee on this issue. 22. The fact remains that the view taken by the Hyderabad Bench of the Tribunal in the case of Electronics Corpn. of India (supra) is applicable to the facts of the case, but this decision was not brought to the notice of Pune Bench of the Tribunal when this matter was considered in Cumins India Ltd., (supra). We are, therefore, not in agreement with the ITA No.1590/Hyd/2018 Page 17 of 19 submissions on behalf of the assessee that prior to 01/07/2016 no power to quantify the expenditure incurred on in-house R&D facility was available with DSIR, after approval of the facility. As stated supra, Rule 6(7A) of the Rules was there in the statute book even prior to 01/07/2016 and earlier also it was reading that approval of expenditure incurred on in-house R&D facility by a company was subject to certain conditions. There has ever been a further requirement under Rule 6(7A)(c) of the Rules that the company shall maintain a separate account for each approved facility and it shall be audited annually, and a copy thereof shall be furnished to the Secretary, DSIR. If there is no power with the DSIR to determine/quantify the expenditure, there is no purpose of this particular provision. Apart from that, Rule 6(7A)(d) of the Rules requires that the assets acquired in respect of development of scientific R&D facility shall not be disposed of without the approval of the Secretary, DSIR. All the provisions under Rule 6(7A) of the Rules clearly indicate that there is a role for prescribed authority, namely, DSIR in respect of the expenditure, which includes both capital and revenue expenditure, that is incurred on in-house R&D facility by a company engaged in the business of biotechnology like the assessee. 23. Since we are of the view that the decision of Hyderabad Bench of the Tribunal in the case of Electronics Corpn. of India (supra) is applicable to the facts of the case which was not brought to the notice of the Bench at the time of deciding the case in Cumins India Ltd., (supra), and the provisions under sub Rule 6 of the Rules do not admit of any ambiguity, we find it difficult to hold that the requisite approval under section 35(2AB) of the Act is, therefore, only in respect of the in-house R&D facility but not in respect of expenditure and consequently, once the R&D facility is ITA No.1590/Hyd/2018 Page 18 of 19 approved, entire expenditure, irrespective of the fact whether or not it is reflected in Form 3CL is eligible for weighted deduction. This position is amply clarified by Rule (5A) and (7A) of the Rules. 24. With this view of the matter, we are of the considered opinion that the Act and the Rules are very clear on this aspect and on this premise, we do not find any illegality or irregularity in the findings of the authorities below. 25. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on this the 22 nd day of July, 2022 Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated: 22/07/2022 TNMM ITA No.1590/Hyd/2018 Page 19 of 19 Copy forwarded to: 1. Biological E Limited, 18/1 & 3, Ram Nagar Road, Azamabad, Hyderabad. 2. Deputy Commissioner of Income Tax, Circle-1(2), Hyderabad. 3. CIT(A)-1, Hyderabad. 4. Pr.CIT-1, Hyderabad. 5. DR, ITAT, Hyderabad. 6. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD