Mahale Behr India Pvt.Ltd, (Formerly known as Mahle Behr India Ltd), Pune V. Deputy Commissioner of Income-tax, Circle - 8, Pune

ITA 624/PUN/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8123 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-05-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 09-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: IS DIRECTED AGAINS T PASSED
• Keywords: Depreciation; Transfer pricing; International transaction; Competent authority; Revenue expenditure; Capital expenditure
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, A PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.624/PUN/2018 / ASSESSMENT YEAR : 2011-12 MAHLE BEHR INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS MAHLE BEHR INDIA LTD.), 29 MILESTONE, PUNE NASIK HIGHWAY, VILLAGE : KURULI, TALUKA : KHED, CHAKAN, PUNE 410501 PAN : AABCB2186L VS. DCIT, CIRCLE -8, PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PA SSED BY THE CIT(A)-6, PUNE ON 31-01-2018 IN RELATION TO THE AS SESSMENT YEAR 2011-12. 2. THE ONLY ISSUE RAISED THROUGH VARIOUS GROUNDS IS AGAINS T THE DENIAL OF WEIGHTED DEDUCTION CLAIMED BY THE ASSESSEE U/S.35 (2AB) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) ON RESEARCH AND DEVELOPMENT EXPENDITURE. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AUTOMOBILE ACCESSORIES PARTICULARLY HEAT ASSESSEE BY SHRI R.D. ONKAR REVENUE BY SHRI MAHADEVAN A.M. KRISHNAN/ SHRI SANGRAM GAIKWAD DATE OF HEARING 30-08-2021 DATE OF PRONOUNCEMENT 31-08-2021 ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 2 EXCHANGERS, I.E. RADIATORS, EVAPORATORS, CONDENSERS AN D AUTOMOTIVE AIR CONDITIONING SYSTEMS. THE RETURN WAS FILED DECLARING TOTAL IN COME OF RS.3.56 CRORE AND ODD. ONE OF THE REPORTED INTERNATIO NAL TRANSACTIONS WAS PAYMENT OF RESEARCH AND DEVELOPMENT EXPE NSES TO THREE ASSOCIATED ENTERPRISES (AES) SITUATED IN THE USA, JAPAN AND GERMANY. THE ASSESSING OFFICER (AO) MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENG TH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. THE TPO ACCEPTED THE TRANSACTION OF PAYMENT OF R&D EXPENSES AT ALP. IN THE COMP UTATION OF TOTAL INCOME, THE ASSESSEE HAD CLAIMED WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT AMOUNTING TO RS.26,73,42,263/- ON RESEARCH AND DEVELOPMENT EXPENSES. THE ASSESSEE WAS CALLED UPON TO FURNISH DETAILS OF SUCH EXPENDITURE CLAIMED AS QUALIFYING FOR THE WEIG HTED DEDUCTION, WHICH WERE FILED. ON PERUSAL OF SUCH DETAILS, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE CLAIMED WEIGHTED DEDUCTION ON RESEARCH AND DEVELOPMENT COSTS OF RS.9,61,8 0,237/- CARRIED OUTSIDE INDIA. REJECTING THE ASSESSEES CONTENTION, TH E AO DISALLOWED A SUM OF RS.8,86,84,811/-, BEING, THE AMOUNT O F CAPITAL R&D EXPENDITURE INCURRED OUTSIDE INDIA. AGGRIEVED THEREBY, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHO, AFTER ISSUING ENHANCEMENT NOTICE, HELD THAT THE AO ERRED IN ALLOWING WEIGHTED DEDUCTION U/S.35(2AB) AT A HIGHER SUM. HE OBSERVED THAT TH E ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 3 PRESCRIBED AUTHORITY HAD RESTRICTED THE AMOUNT OF ELIGIBLE DEDU CTION TO THE AMOUNT OF EXPENDITURE INCURRED FOR THE PERIOD 07-12- 2010 TO 31-03-2011 TO ONLY RS.1,32,39,000/- AS PER FORM NO. 3 CL DATED 08- 07-2014. AS THE APPROVAL WAS GRANTED W.E.F. 07-12-201 0, THE LD. CIT(A) HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR WEIGHTED DE DUCTION ON THE EXPENDITURE INCURRED FROM 01-04-2010 TO 06-12-20 10. HE FURTHER HELD THAT ANY EXPENDITURE CAPITALIZED BY THE ASSESSEE IN THE NATURE OF `INTANGIBLES WAS NOT ELIGIBLE FOR THE WEIGHTED DEDUC TION. THE AMOUNT CAPITALIZED BY THE ASSESSEE WAS HELD TO BE ELIGIB LE FOR DEPRECIATION ALLOWANCE AT 25%. TO SUM UP, HE ALLOWED DEDUC TION FOR A SUM OF RS.2,56,94,285/- (RS.1,32,39,000/- AS PERM ITTED BY THE PRESCRIBED AUTHORITY U/S.35(2AB) PLUS DEPRECIATION @ 25% ON THE AMOUNT OF CAPITAL EXPENDITURE OF RS.4,98,21,138/-. THIS RE SULTED INTO ENHANCEMENT OF INCOME BY RS.15,29,63,167/-, OTHER THAN THE CONFIRMATION OF ADDITION MADE BY THE AO. THIS HAS BROUGHT THE ASSESSEE BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. THE AO PROCEEDED WITH ALLOWING THE WEIGH TED DEDUCTION ON THE BASIS OF A TABLE SUBMITTED BY THE ASSESSEE , WHICH HAS BEEN EXTRACTED IN PARA 5.1 OF HIS ORDER, READING AS UNDER : ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 4 PARTICULARS AMOUNT OUTSIDE INDIA REMAINING CLAIM U/S.35(2AB) CONSIDERED IN FA ADDITIONS - - - - CAPITALISED DEVELOPMENT COST 4,48,35,186 3,39,60,518 1,08,74,668 - TANGIBLE INVESTMENTS- ADDITIONS 42,94,251 - 42,94,251 - MANPOWER COST 6,91,701 - - - SUB TOTAL (A) 4,98,21,138 3,39,60,518 1,58,60,621 9,96,42,277 CONSIDERED IN CWIP DEVELOPMENT COST 5,47,24,293 5,47,24,293 - - TANGIBLE INVESTMENTS 6,800 - 6,800 - SALARY-DESIGN 1,18,45,866 - 1,18,45,866 - TRAVEL EXPENSES 2,05,632 - 2,05,632 - SUB-TOTAL (B) 6,67,82,591 5,47,24,293 1,20,58,298 13,35,65,182 EXPENSES DEBITED TO P&L A/C. (SUB-TOTAL C) 3,41,34,804 74,95,427 2,66,39,378 3,41,34,804 GRAND TOTAL 15,07,38,534 9,61,80,237 5,45,58,297 26,73,42,263 5. IT CAN BE SEEN FROM THE ABOVE TABLE THAT THE ASSESSEE CATEGORIZED R&D EXPENSES UNDER THREE BROAD HEADS: `CONS IDERED IN FA ADDITIONS AMOUNTING TO RS.4,98,21,138/- (SUB-TOTAL A); `CONSIDERED IN CWIP AMOUNTING TO RS.6,67,82,591/- (SUB-TO TAL B); AND `EXPENSES DEBITED TO P&L A/C AMOUNTING TO RS.3,41,34,8 04/- (SUB-TOTAL C). THE THREE HEADS HAVE FURTHER BEEN BIFURCA TED INTO `OUTSIDE INDIA AND `REMAINING INSIDE INDIA. TOTAL OF THREE EXPENSES INCURRED OUTSIDE INDIA COMES TO RS.9,61,80,237. AS THE A GGREGATE SUB-TOTAL C WAS CLAIMED AS REVENUE EXPENDITURE IN PROFIT AND LOSS ACCOUNT, THE ASSESSEE CLAIMED DEDUCTION U/S 35(2AB) AT TWO TIMES OF ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 5 THE AGGREGATE SUB-TOTALS (A) AND (B) AND ONE TIME OF THE AG GREGATE SUB-TOTAL C FOR A TOTAL SUM OF RS.26,73,42,263/-. AGAINST S UCH A CLAIM OF THE ASSESSEE, THE AO DISALLOWED A SUM OF RS.8.86 CRORE, BEING, THE WEIGHTED PART OF SUB-TOTALS (A) AND (B) OF THE E XPENDITURE INCURRED OUTSIDE INDIA, THEREBY ALLOWING A SINGLE UNWEIGHTED DEDUCTION OF SUCH COSTS INCURRED OUTSIDE INDIA. THE LD. CIT (A) FURTHER DISALLOWED EVEN THE ONE TIME OF THE AMOUNT OF THE R EVENUE EXPENSES ALLOWED BY THE AO AND ALSO SUB-TOTALS (A) & (B ) EXCEPT FOR GRANTING DEPRECIATION ALLOWANCE ON THE AMOUNT CONSIDERED BY THE ASSESSEE IN FA ADDITIONS AMOUNTING TO RS.4,98,21,138/-. THU S, THE LD. CIT(A) ALLOWED TOTAL WEIGHTED DEDUCTION OF RS.2.57 CRORES BY PRIMARILY RELYING ON THE AMOUNT APPROVED BY THE PRESCRIBED AUTHORITY (DSIR) WITH EFFECT FROM THE DATE OF APPROVAL, NAMELY, 07- 12-2010 AND ALSO A LIMITED AMOUNT OF DEPRECIATION ALLOWANCE. A COPY OF THE APPROVAL HAS BEEN PLACED AT PAGE 25A OF THE PAPER BOOK, WHICH IS LETTER DATED 07-12-2010 ISSUED BY THE DSIR RECOGNIZING THE ASSESSEES IN-HOUSE R&D UNIT. 6. THE CASE OF THE LD. CIT(A) IS THAT THE ASSESSEE WA S NOT ELIGIBLE FOR WEIGHTED DEDUCTION ON ANY AMOUNT SPENT BY IT ON A DATE P RIOR TO THE GRANT OF APPROVAL. FOR THIS PURPOSE, HE RELIED ON GUID ELINES OF IN- HOUSE R&D CENTRES RECOGNIZED BY DSIR ISSUED IN MAY, 2010 . THE ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 6 RELEVANT PART OF THE GUIDELINES GIVEN IN PARA 6 POLICY FOR A PPROVAL IS AS UNDER : (I) APPROVAL TO THE IN-HOUSE R&D CENTRES HAVING VALID RECOGNITION BY DSIR ARE CONSIDERED FROM 1ST APRIL OF THE Y EAR IN WHICH APPLICATION IS MADE FORM 3CK. (II) APPROVAL IS CONSIDERED CO-TERMINUS WITH DSIR RECOGNITION. (III) FOR COMPANIES NOT HAVING DSIR RECOGNIZED IN-HOUSE R&D CENTRE, APPROVAL IS CONSIDERED FROM THE DATE OF RECOGNITION. 7. THE REMAINING 3 POINTS GIVEN AS - (VI) TO (VI) UNDER THE POLICY APPROVAL - APPLY ONLY IN CASE OF FIRMS. THE ASSESSEE IS A COMPANY WHICH IS GOVERNED BY FIRST THREE CLAUSES OF PARA 6 OF THE POLICY FOR APPROVAL. CLAUSE (I) CLEARLY STATES THAT APPROVAL TO THE IN-HO USE R&D CENTRES HAVING VALID RECOGNITION BY DSIR ARE CONSIDERED FROM IST APRIL OF THE YEAR IN WHICH APPLICATION IS MADE IN FORM 3CK. T HE ASSESSEE IN THE INSTANT CASE FILED APPLICATION ON 15-07-2010 W HOSE COPY IS AVAILABLE AT PAGE 26 TO 66 OF THE PAPER BOOK. PUR SUANT TO THE ASSESSEES APPLICATION, IT WAS ACCORDED RECOGNITION VIDE LETTER ISSUED BY DSIR ON 07-12-2010. GOING WITH THE MANDATE OF CLAUSE (I) OF PARA 6 OF THE GUIDELINES AS EXTRACTED ABOVE, THE APPROVAL WILL HAVE TO BE CONSIDERED FROM IST APRIL OF 2010, WHICH IS THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. CLAUSE (III) PROVIDING FOR THE APPROVAL TO BE CONSIDERED FROM THE DATE OF RECOGNITION, APPLIES ONLY IN CASE OF COMPANIES NOT HAVING D SIR ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 7 RECOGNIZED IN-HOUSE R&D. SINCE THE ASSESSEE HAS A VALID APPROVAL GRANTED BY THE DSIR FOR R&D CENTRE, IT IS COVERED WITHIN THE FOUR WALLS OF CLAUSE (I) AND THERE IS NO SCOPE FOR APPLYING C LAUSE (III) AND ACCORDINGLY MAKING IT ELIGIBLE FOR DEDUCTION ONLY FROM THE DATE OF RECOGNITION. ACCORDINGLY, IT IS HELD THAT THE APPROVAL TO THE ASSE SSEES IN-HOUSE R&D CENTRE IS TO BE CONSIDERED FROM IST APRIL OF 2 010 UNDER THE ABOVE CLAUSE (I). THE VIEW POINT OF THE LD. CIT( A) CONSIDERING THE EXPENDITURE ONLY FROM THE DATE OF THE APPROV AL, NAMELY, 07-12-2010, IN OUR CONSIDERED OPINION IS NOT IN ACC ORDANCE WITH THE RELEVANT RULES. THIS PORTION OF THE IMPUGNED ORDER IS THUS VACATED. 8. THE LD. CIT(A) RESTRICTED THE CLAIM OF WEIGHTED DEDUCTION TO THE AMOUNT OF RS.1,32,39,000/-, BEING, THE AMOUNT PERMI TTED BY THE PRESCRIBED AUTHORITY. FOR THIS, HE RELIED ON RULE 6 (7A) AS APPLICABLE FROM 01-07-2016. CLAUSE (B) OF RULE 6 (7A) PROVIDES A S UNDER: (B) THE PRESCRIBED AUTHORITY SHALL FURNISH ELECTRONICALLY ITS REPORT (I) IN RELATION TO THE APPROVAL OF IN-HOUSE RESEARCH AN D DEVELOPMENT FACILITY IN PART A OF FORM NO.3CL; (II) QUANTIFYING THE EXPENDITURE INCURRED ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY BY THE COMPANY DURING THE PREVIOUS YEAR AND ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SUB-SECTION (2AB) OF SECTION 35 OF THE ACT IN PART B OF FORM NO. 3CL;. 9. SUB-CLAUSE (I) OF CLAUSE (B) OF RULE 6 (7A) PROVIDES TH AT THE PRESCRIBED AUTHORITY SHALL FURNISH ITS REPORT IN RELATION TO THE AP PROVAL ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 8 OF IN-HOUSE R&D FACILITY QUANTIFYING THE AMOUNT OF EXPENDITURE INCURRED DURING THE PREVIOUS YEAR, WHICH IS ELIGIBLE FOR WEIG HTED DEDUCTION UNDER SUB-SECTION (2AB) OF SECTION 35. IT IS ON THE BASIS OF THE ABOVE SUB-CLAUSE (II) OF CLAUSE (B) OF RULE 6(7A) THAT THE LD. CIT(A) OPINED THAT THE QUANTIFICATION OF THE EXPENDITURE INCUR RED ON IN-HOUSE R&D FACILITY HAS TO BE DONE BY THE PRESCRIBED AUTH ORITY AND THE AMOUNT ELIGIBLE FOR WEIGHTED DEDUCTION CANNOT CROSS THAT THRESHOLD. IT IS NO DOUBT TRUE THAT SUB-CLAUSE (II) OF CLAUSE (B) OF RULE 6 (7A) CATEGORICALLY PROVIDES THAT THE AMOUNT OF WEIGHTED DE DUCTION U/S.35(2AB) HAS TO BE RESTRICTED TO THE AMOUNT QUANTIFIED BY TH E PRESCRIBED AUTHORITY. HOWEVER, IT IS RELEVANT TO NOTE THAT THE CLAUSE (B) AS EXTRACTED ABOVE HAS BEEN SUBSTITUTED BY THE INCOME- TAX (10 TH AMENDMENT) RULES, 2016 W.E.F. 01-07-2016. PRIOR TO THI S SUBSTITUTION, THE CLAUSE (B) READ AS UNDER : (B) THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATIO N TO THE APPROVAL OF IN-HOUSE RESEARCH AND DEVELOPMENT FAC ILITY IN FORM NO.3CL TO THE DIRECTOR GENERAL (INCOME-TAX EXEMPTIONS) WITHIN SIXTY DAYS OF ITS GRANTING APPROVAL. 10. AS PER THE PRE-EXISTING CLAUSE (B), THE PRESCRIBED AUTH ORITY WAS SUPPOSED TO SUBMIT ONLY ITS REPORT IN RELATION TO THE APPROVAL O F IN- HOUSE R&D FACILITY TO THE DIRECTOR GENERAL (INCOME-TAX EXEMPTIONS). THE STIPULATION OF QUANTIFYING THE ELIGIBLE EXPEND ITURE BY THE COMPETENT AUTHORITY FOR THE PURPOSES OF WEIGHTED DED UCTION ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 9 U/S.35(2AB) WAS NOT THERE. THE ONLY REQUIREMENT WAS TO SU BMIT THE REPORT IN RELATION TO THE APPROVAL OF IN-HOUSE R&D FACILITY. ANY AMOUNT OF EXPENDITURE INCURRED IN RESPECT OF IN-HOUSE R&D FACILITY QUALIFIED FOR THE DEDUCTION - WHETHER OR NOT APPROVED BY THE PRESCRIBED AUTHORITY. ONLY THE EXISTENCE OF APPROVAL AND INC URRING OF THE EXPENDITURE WERE RELEVANT CONSIDERATIONS IN THE PRE-AMEND ED ERA AND NOT THE AMOUNT QUANTIFIED BY THE PRESCRIBED AUTHORITY. THE NEW STIPULATIONS CAME TO BE INTRODUCED W.E.F. 01-07-2016. AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2011-12 AND THE A PPROVAL WAS GRANTED BY DSIR ON 07-12-2010, THE AMENDED SUB-CLAUSE ( B) OF RULE 6 (7A) COMING INTO VOGUE EVEN AFTER THE PASSING OF THE AS SESSMENT ORDER CAN HAVE NO APPLICABILITY. WE, THEREFORE, HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE AMOUNT OF WEIGHTED DEDUCTION TO THE QUANTIFICATION DONE BY THE PRESCRIBED AUTHOR ITY. THE IMPUGNED ORDER IS REVERSED ON THIS SCORE. 11. THE LD. CIT(A) ALSO HELD THAT THE CAPITAL EXPENDITURE IN TH E NATURE OF INTANGIBLES INCURRED BY THE ASSESSEE COULD NOT QU ALIFY FOR THE WEIGHTED DEDUCTION. FOR THIS PURPOSE, HE RELIED ON THE `GUIDELINES FOR APPROVAL IN FORM 3CM OF IN-HOUSE R&D CENTRE S RECOGNIZED BY DSIR DATED MAY 2014. PARA 4 OF SUCH GUID ELINES CONTAINS `CONDITIONS SUBJECT TO WHICH APPROVAL IS GIVEN. CLAU SE (XI) OF PARA 4 RUNS AS UNDER: ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 10 CAPITAL EXPENDITURE ON R&D, ELIGIBLE FOR WEIGHTED DEDUCTION WILL INCLUDE ONLY PLANT AND EQUIPMENT OR ANY OTHER TANGIBLE ITEM. CAPITALIZED EXPENDITURE OF INTANGIBLE NATURE WILL NOT BE ELIGIBLE FOR WEIGHTED DEDUCTION . 12. IT CAN BE SEEN FROM THE ABOVE THAT THE CAPITAL EXPENDITUR E OF INTANGIBLE NATURE HAS BEEN MADE INELIGIBLE FOR THE WEIGHTED DEDUCTION. HOWEVER, IT IS CRUCIAL TO NOTE THAT THIS INELIGIBILITY HAS BEEN INTRODUCED BY MEANS OF GUIDELINES ISSUED IN MAY 20 14. THE PREDECESSOR GUIDELINES OF MAY 2010 DID NOT CONTAIN ANY CLA USE SIMILAR TO CLAUSE (XI) OF THE 2014 GUIDELINES. SINCE THE ASSE SSMENT YEAR UNDER CONSIDERATION IS 2011-12, THE GUIDELINES ISSUED IN MAY, 2014 CAN HAVE NO APPLICATION TO THE CASE. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS SCORE. 13. NOW WE COME TO THE EXPENDITURE INCURRED OUTSIDE INDIA FOR WHICH THE ASSESSEE RAISED A CLAIM OF WEIGHTED DEDUCTION U/S .35(2AB) THAT WAS NOT ALLOWED BY THE AO. THE LD. AR CLAIMED THAT THE AS SESSEE WAS ENTITLED TO SUCH DEDUCTION, WHICH CONTENTION WAS STRONGLY COUNTERED BY THE LD. DR. IN ORDER TO APPRECIATE THE RIVAL C ONTENTIONS, IT WOULD BE BEFITTING TO HAVE A GLANCE AT THE RELEVANT PART OF SE CTION 35(2AB) WHICH IS AS UNDER : (2AB)( 1 ) WHERE A COMPANY INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF C OST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 11 SHALL BE ALLOWED A DEDUCTION OF A SUM EQUAL TO OF THE EXPENDITURE SO INCURRED: PROVIDED . 14. A CURSORY LOOK AT THE ABOVE PROVISION DECIPHERS THE C ONDITIONS FOR THE WEIGHTED DEDUCTION, INTER ALIA, THAT AN ELIGIBLE COMPANY INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (OTHER THAN CO ST OF LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY . THE KEY WORDS IN THE PROVISION ARE INCURRING OF EXPENDITURE ON IN-HOUSE R&D FACILITY AS AP PROVED BY THE PRESCRIBED AUTHORITY. UNLESS A PARTICULAR R&D FACILITY IS APPROVED BY THE PRESCRIBED AUTHORITY, NO WEIGHTED DEDUCTION CAN FOLLOW. ON A PERTINENT QUERY, THE LD. AR ADMITTED THAT THE P RESCRIBED AUTHORITY APPROVED THE IN-HOUSE R&D UNIT OF THE ASSESSEE S ITUATED AT GAT NO.626/1/2 AND 622/1/0, 26 MILESTONE, PUNE-NASIK HIGHWAY , VILLAGE KURULI, TAL : KHED, DISTRICT PUNE. ON A FURTHER QUERY , THE LD. AR SUBMITTED THAT THE ASSESSEES APPROVED R&D FACILITY WA S ENGAGED IN DESIGNING AND DEVELOPING OF ENGINE COOLING SYSTE MS AND HVAC SYSTEMS FOR VEHICLES. DURING THE DESIGNING AND DEVELO PMENT PHASE, ENGINE COOLANT AND HVAC SYSTEMS ARE REQUIRED TO BE PUT IN PERFORMANCE EVALUATION TESTING IN VARIANT WEATHER CONDITIONS ARTIFICIALLY CREATED, FOR WHICH SOPHISTICATED TECHNOLOGY AND SET UP IS REQUIRED THAT IS NOT AVAILABLE IN INDIA. IT WAS FOR SUCH PER FORMANCE ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 12 EVALUATION TEST UNDER VARIANT WEATHER CONDITIONS ARTIFICIALLY CREA TED THAT THE ASSESSEE AVAILED SERVICES FROM ITS THREE AES SITUATE D ABROAD. IT WAS POINTED OUT THAT THE THREE AES CONDUCTED THE NEEDFUL TESTS FOR WHICH THE ASSESSEE INCURRED TOTAL COST OF RS.9.61 CRORE TA BULATED UNDER COLUMN OUTSIDE INDIA, WHICH WAS ACCEPTED BY THE T PO AT ALP. 15. FROM THE ABOVE DISCUSSION, IT IS ABUNDANTLY CLEAR THAT TH E TOTAL SUM OF RS.9.61 CRORE INCURRED BY THE ASSESSEE OUTSIDE I NDIA HAS NOT BEEN INCURRED ON IN-HOUSE R&D FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY. WHAT TO TALK OF IN-HOUSE R&D FACILITY OF THE ASSESSEE APPROVED BY THE PRESCRIBED AUTHORITY, HERE IS A CASE IN WHICH THE ASSESSEE INCURRED THESE COSTS FOR AVAILING SERVICES FR OM THE R&D FACILITIES OF ITS AES. SINCE THE R&D FACILITIES FOR WHICH THE ASSES SEE INCURRED COSTS OUTSIDE INDIA ARE NEITHER OF THE ASSESSEE N OR APPROVED BY THE PRESCRIBED AUTHORITY, THERE CAN BE NO QUESTION OF GR ANTING ANY WEIGHTED DEDUCTION ON THE EXPENSES INCURRED OUTSIDE INDIA. TO SUM UP, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO WEIGHTED DEDUCTION U/S.35(2AB) ON TOTAL AMOUNT OF EXPENDITURE INCURRED IN INDIA AMOUNTING TO RS.5,45,58,297/-. RESULTANTLY, NO WEIGHTED DEDU CTION IS ADMISSIBLE IN RESPECT OF EXPENDITURE INCURRED OUTSIDE INDIA AMOUNTING TO RS.9,61,80,237/-. ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 13 16. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE THE MANDATE OF SECTION 35 WITH THE CAPTION `EXPENDITURE ON SCIENTIFIC RESEARCH. CLAUSE (IV) OF SECTION 35(1) PROVIDES FOR DEDUCTION OF EXPENDITURE ON SC IENTIFIC NATURE IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSES SEE, SUCH DEDUCTION AS MAY BE ADMISSIBLE UNDER THE PROVISIONS OF SUB- SECTION (2). SUB-SECTION (2) OF SECTION 35, IN TURN, PROVIDES THRO UGH SUB- CLAUSE (IA) THAT FOR THE PURPOSES OF CLAUSE (IV) OF SUB-SE CTION (1): `IN A CASE WHERE SUCH CAPITAL EXPENDITURE IS INCURRED AFTER THE 31 ST DAY OF MARCH, 1967, THE WHOLE OF SUCH CAPITAL EXPENDITURE INCURRE D IN ANY PREVIOUS YEAR SHALL BE DEDUCTED FOR THAT PREVIOUS YEAR. THE PROVISO PROVIDES FOR NOT ALLOWING DEDUCTION IN RESPECT OF EXPENDITURE INCURRED ON ACQUISITION OF ANY LAND. ON A CONJOINT READING O F SECTION 35(1) (IV) READ WITH SECTION 35(2), IT IS MANIFESTED THAT ANY EXPENDITURE OF CAPITAL NATURE INCURRED ON SCIENTIFIC RESEARCH, OTHER THAN THE COST OF LAND ETC., QUALIFIES FOR FULL ONE TIME DEDUC TION IN THE YEAR OF SUCH INCURRING. UNLIKE SUB-SECTION (2AB), SUB-SE CTION (1) DOES NOT REQUIRE ANY SPECIFIC APPROVAL FROM THE PRESCRIBE D AUTHORITY FOR THIS PURPOSE. FURTHER, THERE IS NO STIPULATION THAT THE EXP ENDITURE SHOULD BE INCURRED IN INDIA OR OUTSIDE OR IN-HOUSE R&D FA CILITY OR OTHERWISE, SAVE AND EXCEPT AS PROVIDED IN OTHER CLAUSES OF SUB- SECTION (1) OF SECTION 35. HOWEVER, THE AMOUNT OF DEDUCTIO N ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 14 U/S.35(1) IS EQUAL TO THE AMOUNT OF CAPITAL EXPENDITURE ON SCIE NTIFIC RESEARCH. 17. COMING BACK TO THE AMOUNT OF EXPENDITURE INCURRED B Y THE ASSESSEE OUTSIDE INDIA AMOUNTING TO RS.9,61,80,237/-, WE FIND THAT THE EXPENDITURE OF REVENUE NATURE, NAMELY, RS.74,95,42 7/- WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE AND ACCO RDINGLY ALLOWED ALSO. IT IS ONLY THE REMAINING CAPITAL EXPENDITURE OF RS.8,86,84,811/- [RS.3,39,60,518/- BEING SUB-TOTAL (A) AND RS.5,47,24,293/- BEING SUB-TOTAL (B)] THAT QUALIFIES FOR DED UCTION U/S.35(1)(IV). WE ORDER ACCORDINGLY. 18. THE LD. DR TOOK STRONG EXCEPTION TO THE CLAIM OF TH E LD. AR FOR GRANTING DEDUCTION OF THE CAPITAL EXPENDITURE ON SCIENTIFIC RESEA RCH AND DEVELOPMENT INCURRED OUTSIDE INDIA U/S.35(1)(IV). HE S UBMITTED THAT NO SUCH GROUND HAS BEEN TAKEN BY THE ASSESSEE. IT IS APPARENT THAT THE ASSESSEE RAISED A CLAIM FOR WEIGHTED DEDUCTION ON SUCH AN AMOUNT U/S.35(2AB) OF THE ACT. WE HAVE HELD HEREINABOVE THAT THE AMOUNT DOES NOT QUALIFY FOR THE WEIGHTED DEDUCTION. THE FAC T THAT THE CLAIM OF THE ASSESSEE CANNOT BE ENTERTAINED UNDER ONE PROVISION DOES NOT OUST IT FROM CONSIDERATION UNDER ANY OTHER PROVISION , IF IT IS OTHERWISE ALLOWABLE UNDER SUCH LATTER PROVISION. WE HAVE NOTICE D THAT THE AMOUNT OF CAPITAL EXPENDITURE INCURRED ON RESEARCH A ND DEVELOPMENT OUTSIDE INDIA IS ELIGIBLE FOR DEDUCTION U/S.35(1)(IV) . ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 15 THE SAME, THEREFORE, HAS TO BE ALLOWED AS SUCH. THE LD . DRS CONTENTION IN THIS REGARD IS SANS MERIT AND HENCE REPELLED. 19. TO SUMMARIZE, THE ENTIRE AMOUNT OF R&D EXPENDITUR E INCURRED IN INDIA IS ELIGIBLE FOR WEIGHTED DEDUCTION U/S 35(2AB); REVENUE R&D EXPENDITURE INCURRED OUTSIDE INDIA AS CLAIMED BY THE AS SESSEE GOT ALLOWED IN THE ASSESSMENT ITSELF; TOTAL OF CAPITAL R&D EXPENDITU RE INCURRED OUTSIDE INDIA WILL BE ELIGIBLE FOR DEDUCTION U/S 35(1)( IV) OF THE ACT. 20. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2021. SD/- SD/- ( S.S. VISWANETHRA RAVI ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 31 ST AUGUST, 2021 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE CIT(A)-6, PUNE 3. THE PR.CIT-5, PUNE 4. 5. DR, ITAT, A BENCH, PUNE / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.624/PUN/2018 MAHLE BEHR INDIA PRIVATE LIMITED 16 DATE 1. DRAFT DICTATED ON 30-08-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 31-08-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *