Saarloha Advanced Materials Pvt.Ltd,(Previously known as Kalyani Carpenter Special Steels Pvt.Ltd), Pune V. Deputy Commissioner of Income-tax, Circle - 14, Pune

ITA 19/PUN/2019

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Saarloha Advanced Materials Pvt. Ltd., previously known as Kalyani Carpenter Special Steels Pvt. Ltd., appealed against the order of the Commissioner of Income Tax (Appeals) - 7, Pune, which had confirmed the Assessing Officer's decision denying a weighted deduction on R&D expenditure under section 35(2AB) of the Income Tax Act, 1961. The company had claimed a deduction of Rs. 98,91,263 for R&D expenditure, which was denied due to lack of approval from the Department of Scientific and Industrial Research (DSIR). The tribunal examined whether the appellant met the conditions specified under section 35(2AB) for claiming the deduction and found that the necessary approval from DSIR was not obtained, leading to the dismissal of the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137443 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-03-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 06-01-2019
• Other Referred Cases: Commissioner of Customs (Import), Mumbai Vs Dilip Kumar & Company & Others, Maruti Suzuki India Ltd., CIT vs. Sandan Vikas (India) Ltd., CIT vs. Claris Lifesciences Ltd., ACIT vs. Meco Instruments (P.) Ltd., Advance Enzyme Technologies (P.) Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपील सं. / ITA No.19/PUN/2019 िनधाᭅरण वषᭅ / Assessment Year : 2015-16 Saarloha Advanced Materials Pvt. Ltd. (Previously known as Kalyani Carpenter Special Steels Pvt. Ltd.), 72-76, Mundhwa, Pune- 411036. PAN : AABCK1779L Vs. DCIT, Circle- 14, Pune. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)- 7, Pune [‘the CIT(A)’] dated 17.09.2018 for the assessment year 2015-16. 2. Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing of carbon and alloy steels. The Return of Income for the assessment year 2015-16 was filed on 26.11.2015 declaring total income of Rs.57,44,61,670/-. Against the said return of income, the Assessee by : Shri Nikhil Pathak Revenue by : Shri M. G. Jasnani Date of hearing : 28.03.2023 Date of pronouncement : 29.03.2023 ITA No.19/PUN/2019 2 assessment was completed by the Assessing Officer vide order dated 22.12.2017 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.58,43,52,930/-. While doing so, the Assessing Officer denied the claim for weighted deduction on R&D expenditure claimed u/s 35(2AB) of Rs.98,91,263/- for want of requisite approval received from DSIR. Even on appeal before the ld. CIT(A), the ld. CIT(A) confirmed the action of the Assessing Officer. 3. Being aggrieved, the appellant is in appeal before us in the present appeal. 4. It is submitted before us that the appellant satisfied the conditions as specified u/s 35(2AB) for claiming weighted deduction as recognized/granted by the DSIR for R&D activity. 5. On the other hand, ld. Sr. DR placing reliance on the orders of the lower authorities prayed for the sustenance of the addition. 6. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to whether or not the appellant is entitled for weighted deduction u/s 35(2AB) in respect of expenditure incurred on R&D under the provisions of section 35(2AB) of the Act?. For better appreciation, the provisions of section 35(2AB) read as under :- “35. ......... ITA No.19/PUN/2019 3 (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 43 , 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 co- operation 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 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.” 7. On mere perusal of the above provisions of the Act, it would be clear that the appellant would be entitled for weighted deduction u/s 35(2AB) on account of (i) expenditure incurred on R&D, (ii) subject to the requisite approval of such facilities by prescribed authorities i.e. DSIR and (iii) the appellant would be entitled for ITA No.19/PUN/2019 4 weighted deduction on the expenditure so incurred. In the present case, no doubt, expenditure had been incurred on R&D, however, the requisite approval u/s 35(2AB) was obtained from the prescribed authorities, as evident from the assessment order. No doubt, the assessee company had filed an application for seeking the extension of such approval. Such extension was denied by the prescribed authorities on account of fact that the assessee company had not adhered to the prescribed conditions. This denial of extension was communicated to the Assessing Officer by the prescribed authorities. If the appellant is aggrieved by the denial of extension of approval u/s 35(2AB), the only course of action available to the appellant is to invoke writ jurisdiction of the Hon’ble High Court. Thus, the material on record clearly indicates that there was no requisite approval as envisaged u/s 35(2AB), which is condition precedent for availing the benefit of deduction u/s 35(2AB) of the Act. It is also settled principle of construction while construing the provisions of exemption, the provisions should be construed strictly as laid down by the Constitution Bench of the Hon’ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs Dilip Kumar & Company & Others in Civil Appeal No.3327 of 2007 decided on 30.07.2018. ITA No.19/PUN/2019 5 8. Reliance placed by the ld. AR on the decision of the Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) has no application to the facts of the present case, inasmuch as, the ratio laid down in the said case is that once the requisite approval is granted to an assessee u/s 35(2AB) by prescribed authorities, there is nothing in the provisions of law u/s 35(2AB) that only the approval is relevant not the date of approval of facility availing the benefit u/s 35(2AB), as it amounts to reading more than in law which is not expressly provided in the present case. Admittedly, in the present case, no approval as envisaged u/s 35(2AB) was granted by the prescribed authorities. Therefore, the ratio of the said decision of the Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) has no application to the facts of the present case. 9. Similarly, the ratio of the decision of the Hon’ble Delhi High Court in the case of CIT vs. Sandan Vikas (India) Ltd., 335 ITR 117 (Delhi) also laid down that for the purpose of availing of weighted deduction u/s 35(2AB), the cut off date issued by the DSIR would be of no relevance. The facts of the said case are that the DSIR granted recognition on 23.06.2006 and also granted approval for expenditure incurred on R&D by letter dated 18.09.2006. The Assessing Officer had denied the claim for deduction u/s 35(2AB) ITA No.19/PUN/2019 6 for the assessment year 2005-06 on the ground that the recognition was given by the DSIR in February, 2006, the assessee entitled for deduction only from the next assessment year onwards. The Hon’ble High Court reversing the findings of the Assessing Officer held that the cut off date mentioned by the DSIR has no relevance, but whereas in the present case, the approval as envisaged was specifically denied for the failure of the assessee to adhere the prescribed conditions. Similarly, the decision of the Hon’ble Gujarat High Court in the case of CIT vs. Claris Lifesciences Ltd., 174 Taxman 130 (Gujarat) only laid down that section 35(2AB) nowhere suggests that the date of approval of R&D facilities would be cut off date of eligibility of weighted deduction in respect of expenses incurred from that date onwards. Whereas the entire expenditure incurred on R&D has to be allowed as weighted deduction. The ratio of the said decision of the Hon’ble Gujarat High Court (supra) has no application to the facts of the present case. As admittedly, there was no requisite approval u/s 35(2AB), the decision of the Co-ordinate Bench of the Bombay Tribunal in the case of ACIT vs. Meco Instruments (P.) Ltd., 7 taxmann.com 24 (Mumbai – Trib.) and in the case of Advance Enzyme Technologies (P.) Ltd. vs. ACIT, 116 taxmann.com 498 (Mumbai - Trib.) have no application to the facts of the present case. In those cases, ITA No.19/PUN/2019 7 admittedly, the requisite approval in Form No.3CM was obtained by the assessee for the relevant assessment year. The ld. CIT(A) had fell in serious error in allowing the deduction u/s 35(2AB) in the absence of requisite approval u/s 35(2AB) of the Act. The ld. CIT(A) lost sight of the fact that the recognition of R&D facilities is separate and distinct from approval of R&D facilities for the purpose of deduction u/s 35(2AB) of the Act. Therefore, the order of the ld. CIT(A) is just and proper and we do not find any illegality in the order of the ld. CIT(A). In the circumstances, we uphold the order of the ld. CIT(A). Thus, the ground of appeal filed by the assessee stands dismissed. 10. In the result, the appeal filed by the assessee stands dismissed. Order pronounced on this 29 th day of March, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 th March, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-7, Pune. 4. The Pr. CIT-6, Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “B” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.