Sandhar Technologies Ltd., New Delhi V. DCIT, Circle LTU-1, New Delhi

ITA 2960/DEL/2018

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 4174 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-01-2024
• Assessment Year: 2014-2015
• Appeal Filed On: 25-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Revenue expenditure
• Section: 113

Judgement Text

1 ITA No. 2960/Del/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No. 2960/DEL/2018 Assessment Year: 2014-15 Sandhar Technologies Ltd., B-6/20, LSC, Safdarjung Enclave, New Delhi-110029 PAN: AAACS0512J Vs DCIT, Circle-1, LTU, New Delhi. APPELLANT RESPONDENT Assessee represented by Sh. Salil Kapoor, Adv.; Ms. Ananya Kapoor, Adv.; & Utkarsa Kumar Gupta, Adv. Department represented by Sh. Vivek Kumar Upadhyay, Sr. dR Date of hearing 18.01.2024 Date of pronouncement 25.01.2024 O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals)-22, New Delhi, dated 26.02.2018, pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal: “1. That the order of the Ld. AO as well as CIT(A) is bad in law and against the facts of the case. 2 ITA No. 2960/Del/2018 2. That the Ld. AO as well as CIT(A) was not justified in disallowing deduction of Rs. 9,61,259/- out of research and development expenses claimed u/s 35(2AB) of the I.T. Act. 3. That the assessee craves right to amend, delete, substitute any one or more of the grounds of appeal at the time of hearing.” 2. The only effective ground is against disallowance deduction of Rs. 9,61,259/- out of research and development expenses claimed u/s 35(2AB) of the I.T. Act, 1961, hereinafter referred to as the “Act”. Facts giving rise to the present appeal are that the assessee, a company , filed its e-return on 29.11.2014 declaring total income of Rs. 19,54,81,780/-. The assessee had also claimed deduction u/s 35(2AB) amounting to Rs. 2,18,52,259/- (revenue expenditure of Rs. 1,98,93,097/- and capital expenditure of Rs. 19,59,162/-). Out of this expenditure, the AO disallowed a sum of Rs. 9,79,000/- on the basis that the Department of Scientific & Industrial Research (‘DSIR’ in short) had approved weighted deduction of Rs. 1,98,98,000/-. Thus, he disallowed Rs. 9,61,259/-. Aggrieved against this the assessee preferred appeal before the learned CIT(A), who sustained the addition and dismissed the appeal of the assessee. Now the assessee is in appeal before this Tribunal. 3. Learned counsel for the assessee submitted that the Tribunal under identical facts in A.Y. 2013-14 had allowed the claim of the assessee in ITA No. 3 ITA No. 2960/Del/2018 8160/Del/2018. He contended that the amendment in the provision was brought later in statute book. 4. On the other hand learned DR supported the impugned order and submitted that there is no infirmity in the order of lower authorities. The law requires that weighted deduction u/s 35(2AB) can be allowed to the extent of the expenditure approved by the DSIR. 5. We have heard rival submissions and perused the material available on record. We find that the learned CIT(A) sustained the disallowance by observing as under: “6. The appellant's explanation has been examined. For deduction u/s 35 (2AB), the conditions mentioned in section 35(2AB)(3) and 35(2AB)(4) are mandatory apart from other conditions mentioned in the said section. For reference, section 35(2AB) (3) and 35(2AB)(4) are reproduced herein under:- "35(2AB)[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 for audit of the accounts maintained for that facility. 35/2AB)(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." 6.1 Form 3CL is the prescribed form u/s 35(2AB)(4) and column 9 of the said form gives the breakup of total cost of in-house research facility, giving breakup of expenditure on land and building with the corresponding assessment year. The form 3CL also mentions several other details in respect of the facility for which the deduction is claimed. Therefore, in order 4 ITA No. 2960/Del/2018 to claim a deduction, an assessee has to enter into an agreement with prescribed authority and also agree to the conditions regarding maintenance and audit of accounts. The prescribed authority has to furnish of reports in such manner as may be prescribed. Therefore, the deduction u/s 35(2AB) is to be limited to the expenditure approved by the prescribed authority (in this case secretary, DSIR) in form 3CL. Therefore, ground no. 2 of the appeal is dismissed.” 5.1 However, under identical facts the Tribunal in A.Y. 2013-14, after considering the submissions, had decided the issue in favour of the assessee by following the binding precedent. For the sake of clarity relevant contents of the order of the Tribunal for A.Y. 2013-14 in ITA no. 8160/Del/2018 is reproduced hereunder: “7. ......... We find that the issue in dispute is already squarely addressed by the Hon'ble Jurisdictional High Court in the case of CIT vs Sandan Vikas (India) Ltd reported in 335 ITR 117 (Del) wherein it was held as under:- “1. The assessee claims that it is engaged in the business of manufacturing of automotive air conditioning and is also undertaking research and development activity in this behalf. In the assessment year, i.e., assessment year 2005-2006, the assessee claimed a deduction of Rs. 3,83,62,003/- under Section 35 (2AB) of the Income Tax Act (hereinafter referred to as "the Act"). The business expenses incurred are naturally allowed as deductions, however, the aforesaid provisions gives weighted deduction to the assessees, who are engaged into research and development activity. The objective is to encourage research and development by the business enterprises in India. 2. The provision further states that in order to claim this weighted deduction, it is to be certified by the Competent Authority that the assessee had undertaken research and development activity. The competent authority in this behalf is Department of Scientific & Industrial Research (DSIR). The assessee had approached DSIR vide 5 ITA No. 2960/Del/2018 application dated 10th January, 2005. The DSIR vide its letter dated 23rd February, 2006 granted recognition of the in-house R&D facilities of the assessee company and also granted approval for the expenses incurred by the company on in-house R&D facility in prescribed form 3CM by letter dated 18th September, 2006. The Assessing Officer, however, refused to accord the benefit of the aforesaid provisions of weighted deduction to the assessee on the ground that recognition and approval was given by the DSIR in February/September 2006, i.e., in the next assessment year and, therefore, the assessee was not entitled to the benefit. The CIT(Appeal) accepted this view of the Assessing Officer and dismissed the appeal, however, the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") has come to the conclusion that the assessee would be entitled to weighted deductions of the aforesaid expenditure incurred by the assessee in terms of the Section 35(2AB) of the Act and in coming to this conclusion, the Tribunal has relied upon the judgment of Gujarat High Court in CIT v. Claris Lifesciences Ltd. [2010] 326 ITR 251/[2008] 174 Taxman 113. We have gone through the aforesaid judgment of the Gujarat High Court and find that Gujarat High Court detailed in no-uncertain terms that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R&D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfills the conditions laid down in the aforesaid provisions. The discussions, which is undertaken by the Gujarat High Court while interpreting the aforesaid provisions, is extracted below: "7. ......The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the research and development facility, expenditure so incurred is eligible for weighted deduction. 8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of: (i) development of facility; (ii) incurring of expenditure by the assessee for development of such facility: 6 ITA No. 2960/Del/2018 (iii) approval of the facility by the prescribed authority, which is DSIR; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. 9. The provisions nowhere suggest or imply that research and development facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered Rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by Section 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up research and development facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim 7 ITA No. 2960/Del/2018 weighted deduction in respect of the entire expenditure incurred under Section 35(2AB) of the Act by the assessee." 3. We are in full agreement with the aforesaid approach of the Gujarat High Court. No substantial question of law, therefore, arises. The appeal is dismissed.” 8. Further we find that similar views were taken in the following decisions:- a) Hon'ble Jurisdictional High Court in the case of Maruti Suzuki India Ltd vs Union of India reported in 397 ITR 728 (Del) b) Hon'ble Gujarat High Court in the case of Banco Products (India) Ltd vs DCIT reported in 405 ITR 318 (Guj) 9. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the assessee would be entitled for deduction u/s 35(2AB) of the Act for the expenditure incurred from 1.4.2012 to 31.3.2013. Accordingly, the grounds raised by the assessee on merits are allowed.” 5.2 The present case is distinguishable on facts as in the present case the issue is whether the expenditure claimed by the assessee is required to be approved by the DSIR. So far issue related to approval by the DSIR there is no quarrel in the year under appeal. The only dispute is whether the expenditure claimed by the assessee ought to have been allowed in totality de hors allowance of the expenditure restricted by the DSIR. 5.3 The assessee has relied upon the judgment of the Hon’ble High Court of Gujarat in the case of Commissioner of Income-tax Vs. Claris Lifesciences Ltd. [2008] 174 Taxman 113 (Gujarat), wherein the Hon’ble under identical facts has held as under: 8 ITA No. 2960/Del/2018 “7. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of (i) development of facility; (ii) incurring of expenditure by the assessee for development of such facility; (iii) approval of the facility by the prescribed authority, which is "DSIR"; and (iv) allowance of weighted deduction on the expenditure so incurred by the assessee. The provisions nowhere suggest or imply that "R & D” prime prime facility is to be approved from a particular date and in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of "R & D" facility has to be allowed for weighted deduction as provided by section 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R & D facility in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the Legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 8. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee.” 5.4 The Revenue has not brought any other contrary decision to our notice. We, therefore, in the light of the above decision of the Hon’ble High Court of Gujarat 9 ITA No. 2960/Del/2018 (supra), direct the AO to verify the correctness of the claim of the actual expenses incurred by the assessee in respect of scientific research in-house research and development facility. If the claim of assessee is found to be correct he would delete the impugned disallowance of expenditure. The ground raised by the assessee is allowed for statistical purposes. 6. Appeal of the assessee is allowed for statistical purposes. Order pronounced in open court on 25 th January, 2024. Sd/- Sd/- (PRADIP KUMAR KEDIA) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI