MAHLE ANAND THERMAL SYSTEMS PVT. LTD,PUNE V. DCIT CIRCLE 8, PUNE

CO 12/PUN/2024

AI Insights

The case involves multiple appeals and cross objections related to the assessment years 2014-15, 2015-16, and 2017-18, concerning the disallowance of deductions claimed by M/s. Mahle Anand Thermal Systems Pvt. Ltd. under sections 35(2AB) and 35(1)(iv) of the Income Tax Act, 1961. The primary issues revolved around the eligibility for weighted deductions on R&D expenditures and the treatment of product development expenses. The CIT(A) had allowed some deductions while disallowing others, leading to appeals by both the assessee and the Revenue. The Tribunal's decision was influenced by previous rulings in similar cases and the specific provisions of the Income Tax Act regarding R&D expenditures.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37848 (ITAT-PUNE)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Other Referred Cases: Cadila Health Care Ltd. vs. Addl. CIT, CIT vs. Ciba of India Ltd., National Rayon Corporation ltd., Empire Jute Co. Ltd. v. CIT, Alembic Chemical Works Co. Ltd. v. CIT, CIT vs. Tejas Networks India (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMOL KHAIRNAR
• Assessee Lawyers: R D ONKAR
• Keywords: Capital asset; Opportunity of being heard; Revenue expenditure; Transfer pricing; International transaction; Question of law; Depreciation; Capital expenditure; Competent authority
• Section: 143(3); 250; 32; 13; 37

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R. K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.127/PUN/2024 Assessment year : 2014-15 DCIT, Circle-8, Pune Vs. M/s. Mahle Anand Thermal Systems Pvt. Ltd. 29, Milestone Pune Nashik Highway, Chakan, Pune – 410501 PAN: AABCB2186L (Appellant) (Respondent) ITA No.333/PUN/2024 Assessment year : 2014-15 M/s. Mahle Anand Thermal Systems Pvt. Ltd. 29, Milestone Pune Nashik Highway, Chakan, Pune – 410501 Vs. DCIT, Circle-8, Pune PAN: AABCB2186L (Appellant) (Respondent) ITA No.96/PUN/2024 Assessment year : 2015-16 DCIT, Circle-8, Pune Vs. M/s. Mahle Anand Thermal Systems Pvt. Ltd. 29, Milestone Pune Nashik Highway, Chakan, Pune – 410501 PAN: AABCB2186L (Appellant) (Respondent) CO No.12/PUN/2024 Assessment year : 2015-16 M/s. Mahle Anand Thermal Systems Pvt. Ltd. 29, Milestone Pune Nashik Highway, Chakan, Pune – 410501 Vs. DCIT, Circle-8, Pune PAN: AABCB2186L (Cross Objector) (Respondent) 2 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 ITA No.228/PUN/2024 Assessment year : 2017-18 DCIT, Circle-8, Pune Vs. M/s. Mahle Anand Thermal Systems Pvt. Ltd. 29, Milestone Pune Nashik Highway, Chakan, Pune – 410501 PAN: AABCB2186L (Appellant) (Respondent) Assessee by : Shri R D Onkar Department by : Shri Amol Khairnar CIT-DR Date of hearing : 31-12-2024 Date of pronouncement : 22-01-2025 O R D E R PER R. K. PANDA, VP : ITA No.127/PUN/2024 filed by the Revenue and ITA No.333/PUN/2024 filed by the assessee are cross appeals and are directed against the order dated 28.11.2023 of the Ld. CIT(A), Pune – 13 relating to assessment year 2014-15. ITA No.96/PUN/2024 filed by the Revenue is directed against the order dated 29.11.2023 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2015-16. The assessee has filed the Cross Objection vide CO No.12/PUN/2024 against the appeal filed by the Revenue. ITA No.228/PUN/2024 filed by the Revenue is directed against the order dated 18.12.2023 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18. Since common issues are involved in the appeals filed by Revenue, CO and appeal filed by the assessee, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order. 3 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 2. First we take up ITA No.127/PUN/2024 for assessment year 2014-15 as the lead case. Facts of the case, in brief, are that the assessee is engaged in the business of manufacturing of Automobile Ancillaries particularly Heat Exchangers i.e. Radiators, Evaporators, Condensers and Automotive Air Conditioning system. It filed its return of income on 29.11.2014 declaring total income of Rs.9,95,44,850/-. The Assessing Officer completed the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on 23.12.2016 determining the total income at Rs.19,31,29,820/- wherein he made the disallowance of Rs.8,31,07,474/- being the weighted deduction u/s 35(2AB) of the Act and Rs.1,04,77,500/- being the Product Development expenses treating the same as Capital Expenditure as against Revenue expenditure claimed by the assessee. The Assessing Officer while making the disallowance u/s 35(2AB) followed the decision of the Ahmedabad Bench of the Tribunal in the case of Cadila Health Care Ltd. vs. Addl. CIT (ITA No.3140/Ahd/2010), CIT vs. Ciba of India Ltd. (69 ITR 188), National Rayon Corporation ltd. (140 ITR 143) and other decisions. 3. So far as the disallowance of Product Development expenditure treating the same as capital expenditure is concerned, he followed the decision in assessee’s own case for assessment years 2006-07 to 2008-09. 4 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 4. So far as the disallowance of weighted deduction claimed u/s 35(2AB) is concerned, the Assessing Officer noted that the assessee has reduced the amount of Rs.16,33,61,805/- u/s 35(2AB) being the expenditure on in-house scientific research expenses allowable. The assessee was asked to furnish the details of expenditure on R&D. From the details submitted by the assessee, the Assessing Officer noted that the assessee has claimed weighted deduction u/s 35(2AB) amounting to Rs.16,33,61,805/- out of which the assessee has claimed weighted deduction on R&D cost amounting to Rs.4,15,53,737/- carried outside India, out of which, the Assessing Officer disallowed Rs.8,31,07,474/- being the disallowance of weighted deduction claimed on expenditure incurred outside India. 5. In appeal, the Ld. CIT(A) allowed expenses incurred outside India on R&D u/s 35(1)(iv) although such claim was not under the same section but was u/s 35(2AB) by observing as under: “2.3 I have carefully considered the submission of the appellant in light of the facts of the case. In this case, it is seen that the Hon'ble ITAT, Pune vide its order ITA No. 624/PUN/2018 dated 31.08.2021 in appellant's own case for AY 2011-12 has decided the similar issue in favour of the appellant. The relevant paragraphs of the Hon'ble ITAT, Pune's order dated 31.08.2021 is extracted as follows for reference: \"QUOTE 15. From the above discussion, it is abundantly clear that the total sum of Rs.9.61 crore incurred by the assessee outside India 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 from the R&D facilities of its AEs. Since the R&D facilities for which the assessee incurred costs outside India are neither of the assessee nor approved by the prescribed authority, there can be no 5 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 question of granting 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 deduction is admissible in respect of expenditure incurred outside India amounting to Rs.9,61,80,237/-. 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 scientific nature \"in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2).\" Sub-section (2) of section 35, in turn, provides through sub-clause (ia) that for the purposes of clause (iv) of sub-section (1): 'in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred 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 of 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 deduction in the year of such incurring. Unlike sub-section (2AB), sub-section (1) does not require any specific approval from the prescribed authority for this purpose. Further, there is no stipulation that the expenditure should be incurred in India or outside or in-house R&D facility or otherwise, save and except as provided in other clauses of subsection (1) of section 35. However, the amount of deduction u / s 35(1) is equal to the amount of capital expenditure on scientific research. 17. Coming back to the amount of expenditure incurred by the assessee outside India amounting to Rs 9,61,80,237/-, we find that the expenditure of revenue nature, namely, Rs.74,95,427/- was claimed by the assessee as revenue expenditure and accordingly 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 deduction u/s 35(1)(iv). We order accordingly. 18. The Ld. DR took strong exception to the claim of the Id. AR for granting deduction of the capital expenditure on scientific research and development incurred outside India u/s 35(1)(iv). He submitted 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 fact 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 noticed that the amount of capital expenditure incurred on research and 6 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 development outside India is eligible for deduction u/s 35(1)(iv). The same, therefore, has to be allowed as such. The Ld. DR's contention in this regard is sans merit and hence repelled. 19. To summarize, the entire amount of R&D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB) revenue R&D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself, total of capital R&D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act.\" UNQUOTE\" It is seen from the above discussion in the honourable ITAT Pune's order that the facts are somewhat similar here. Respectfully following the above decision, it is accordingly held that the product development expenses of Rs.4,15,53,737 spent outside India is not eligible for weighted deduction u/s 35(2AB). However it is allowed as a deduction u/s 35(1)(iv) as capital expenditure incurred on scientific purpose. Appeal is partly allowed on this ground.” 6. So far as the expenditure incurred by the assessee of Rs.1,04,77,500/- on Product Development expenses treating the same as capital is concerned, the Ld. CIT(A) also allowed the same by observing as under: “3.3 I have carefully considered the submission of the appellant in light of the facts of the case. In this case, it is seen that the Hon'ble ITAT, Pune vide its order ITA No. 624/PUN/2018 dated 17.05.2022 in appellant's own case for AY 2011-12 has decided the similar issue in favour of the appellant. The relevant paragraphs of the Hon'ble ITAT, Pune's order dated 17.05.2022 is extracted as follows for reference: \"QUOTE 8. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to whether or not the expenditure incurred on testing and validation of the products is capital in nature. During the previous year relevant to the assessment year under consideration, the appellant incurred expenditure of Rs.2,45,34,542/- on testing and validation, out of which a sum of Rs.1,02,94,971/- was recovered from the customers and balance of product development expenditure of Rs. 1,42,39,571/- was claimed as revenue expenditure. However, the Assessing Officer had treated the same as capital expenditure and allowed the depreciation thereon. The explanation given before the Assessing Officer is that the expenditure was incurred to improve the existing products. The true nature of the expenditure had not been doubted 7 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 by the Assessing Officer. Undisputedly, the appellant is in the business of manufacturing of automotive components since 1999. As result of this expenditure, no new asset has been created nor new product did actually materialize. The expenditure was only incurred for the purpose of facilitating the existing business of manufacturing of automotive components and enabling the management to conduct the business operations more efficiently and productively. The Hon'ble Supreme Court in the case of (i) Empire Jute Co. Ltd. v. CIT, 124 ITR 1 and (ii) Alembic Chemical Works Co. Ltd. v. CIT, 177 ITR 377 (SC) held that expenditure incurred on the existing business incurred in connection with the existing business. Updating existing products should be allowed as revenue expenditure. Keeping in view the principles laid down by the Hon'ble Karnataka High Court in the case of CIT vs. Tejas Networks India (P.) Ltd., 52 taxmann.com 513 (Kar.), the Hon'ble Supreme Court in the cases referred supra held as under.- \"Having regard to the facts of this case, the expenditure that is claimed is for upgrading the existing product. Therefore, the product so upgraded goes on changing as time progresses, keeping in mind the requirement and the competition in the market. The Tribunal rightly held that the expenditure is not in the nature of capital expenditure but is revenue expenditure. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue.” 9. In the light of legal position discussed above, having regard to the facts of the case that the expenditure was incurred only up-gradation of existing products, we are of the considered opinion that the expenditure is not in the nature of capital but revenue expenditure. Accordingly, we direct the Assessing Officer to allow the expenditure as revenue nature. Accordingly, this ground of appeal no.8 filed by the assessee stands allowed UNQUOTE” The facts are somewhat similar this year's expenses of Rs 1,39,70,000 spent on product testing, inspection and validation. In view of the above discussion, respectively following the decision of the Hon'ble ITAT, Pune, appeal on this ground is allowed.” 7. Aggrieved with such order of the Ld. CIT(A) giving part relief, the assessee is in appeal before the Tribunal by raising the following grounds of appeal: Being aggrieved by the order passed u/s 250 of the Income Tax Act 1961 (the Act) by the learned Commissioner of Income Tax Appeals 13, Pune (CITA) your 8 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 appellant submits following grounds for your kind and sympathetic consideration which are raised without prejudice to each other: On facts and in circumstances of the case and in Law, 1. The Learned CITA erred in not allowing claim of Rs. 8,31.07,474/- at two hundred percent of Rs. 4,15.53,737/- made by the appellant u/s 35(2AB) of the Income Tax Act, 1961 in respect of research expenditure of revenue nature on product testing, validation and prototyping incurred outside India. 2. The learned CITA erred in not appreciating the fact that even though the said expenditure of revenue nature Rs. 4,15,53,737/-incurred on product testing, validation and prototyping was incurred outside appellant's in house R & D facility in India it was eligible for weighted deduction claim u/s 35 (2AB) of the Act since the said expenditure was nothing but a part of the self sufficient and self reliant own in house R & D conducted by it. It is prayed that the aforesaid disallowance addition to income be deleted. 3. Your Appellant craves leave to add, modify or delete grounds of appeal. 8. Aggrieved with the part relief granted by the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the expenses incurred outside India on R&D u/s 35(1)(iv) of Income Tax Act, 1961, when the claim of the assessee was not u/s 35[1](iv) of the Income Tax Act, 1961 but was under section 35(2AB) of the Income Tax Act. 1961? 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the expenditure incurred by the assessee of Rs.1,04,77,500/- on product development was incurred only for up-gradation of existing products without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting patent for the products developed. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs 1,04,77,500/- un product development as revenue expenses without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting patent for the products developed and hence the expenses incurred were for a capital asset and therefore, capital in nature. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs. 1,04,77,500/- on product development expenses as revenue expense by relying upon the decisions of Hon'ble ITAT 9 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 in assessee's own case for AY 2011-12, without appreciating that the said decision has not beers accepted by the Department and an appeal has been filed before the Hon'ble Bombay High Court. 5. The appellant craves leave to add, amend, or alter any ground(s) of appeal at the time of hearing before the Hon'ble Tribunal. 9. So far as ground of appeal No.1 by the Revenue challenging the order of the Ld. CIT(A) in allowing the capital expenditure outside India on R&D u/s 35(1)(iv) is concerned, we find the same stands covered in favour of the assessee by the Tribunal in assessee’s own case for assessment year 2011-12 wherein the Tribunal has observed as under: “3. Succinctly, the facts of the case are that the assessee is engaged in manufacturing automobile accessories particularly Heat exchangers, i.e. Radiators, Evaporators, Condensers and Automotive air conditioning systems. The return was filed declaring total income of Rs.3.56 crore and odd. One of the reported international transactions was Payment of Research and development expenses 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 arm’s length price (ALP) of the international transactions. The TPO accepted the transaction of Payment of R&D expenses at ALP. In the computation 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 weighted 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.9,61,80,237/-carried outside India. Rejecting the assessee’s contention, the AO disallowed a sum of Rs.8,86,84,811/-, being, the amount of 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 the prescribed authority had restricted the amount of eligible deduction 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. 3CL dated 08-07-2014. As the approval was granted w.e.f. 07-12-2010, the ld. CIT(A) held that the assessee was not eligible for weighted deduction on the expenditure incurred from 01-04-2010 to 06-12- 2010. He further held that any expenditure capitalized by the assessee in the nature of `Intangibles’ was not eligible for the weighted deduction. The amount capitalized by the assessee was held to be eligible for depreciation allowance at 25%. To sum up, he allowed deduction for a sum of Rs.2,56,94,285/- 10 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 (Rs.1,32,39,000/- as permitted by the Prescribed authority u/s.35(2AB) plus depreciation @ 25% on the amount of capital expenditure of Rs.4,98,21,138/-. This resulted 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 relevant material on record. The AO proceeded with allowing the weighted 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 : 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: `Considered in FA Additions’ amounting to Rs.4,98,21,138/- (Sub-total A); `Considered in CWIP’ amounting to Rs.6,67,82,591/- (Sub-total B); and `Expenses Debited to P&L A/c’ amounting to Rs.3,41,34,804/- (Sub-total C). The three heads have further been bifurcated into `Outside India’ and `Remaining’ inside India. Total of three expenses incurred outside India comes to Rs.9,61,80,237. As the aggregate 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 the aggregate Sub-totals (A) and (B) and one time of the aggregate Sub-total C for a total sum of Rs.26,73,42,263/-. Against such 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 expenditure incurred outside India, thereby allowing a single unweighted deduction of such costs incurred outside 11 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 India. The ld. CIT(A) further disallowed even the one time of the amount of the revenue 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/-. Thus, 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 assessee’s in-house R&D unit. 6. The case of the ld. CIT(A) is that the assessee was not eligible for weighted deduction on any amount spent by it on a date prior to the grant of approval. For this purpose, he relied on Guidelines of in-house R&D centres recognized by DSIR issued in May, 2010. The relevant part of the guidelines given in para 6 – Policy for approval is as under : “(i) Approval to the in-house R&D centres having valid recognition by DSIR are considered from 1st April of the year 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-house R&D centres having valid recognition by DSIR are considered from Ist April of the year in which application is made in Form 3CK. The assessee in the instant case filed application on 15-07-2010 whose copy is available at page 26 to 66 of the paper book. Pursuant to the assessee’s 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 DSIR 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 clause (iii) and accordingly making it eligible for deduction only from the date of recognition. Accordingly, it is held that the approval to the assessee’s in-house R&D centre is to be considered from Ist April of 2010 under the above clause (i). The view point of the ld. CIT(A) considering the expenditure only from the date of the approval, namely, 07-12-2010, in our considered opinion is not in accordance 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 permitted by the Prescribed authority. For 12 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 this, he relied on Rule 6 (7A) as applicable from 01-07-2016. Clause (b) of Rule 6 (7A) provides as under: “(b) The prescribed authority shall furnish electronically its report – (i) In relation to the approval of in-house research and 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 that the prescribed authority shall furnish its report in relation to the approval of in-house R&D facility quantifying the amount of expenditure incurred during the previous year, which is eligible for weighted 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 incurred on in-house R&D facility has to be done by the prescribed authority 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 deduction u/s.35(2AB) has to be restricted to the amount quantified by the prescribed authority. However, it is relevant to note that the clause (b) as extracted above has been substituted by the Income-tax (10th Amendment) Rules, 2016 w.e.f. 01-07-2016. Prior to this substitution, the clause (b) read as under : “(b) The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility 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 authority was supposed to submit only its report in relation to the approval of in-house R&D facility to the Director General (Income-tax Exemptions). The stipulation of quantifying the eligible expenditure by the competent authority for the purposes of weighted deduction u/s.35(2AB) was not there. The only requirement was to submit 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 incurring of the expenditure were relevant considerations in the pre-amended 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 approval 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 assessment 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 authority. The impugned order is reversed on this score. 11. The ld. CIT(A) also held that the capital expenditure in the nature of Intangibles incurred by the assessee could not qualify for the weighted deduction. 13 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 For this purpose, he relied on the `Guidelines for approval in Form 3CM of in- house R&D Centres recognized by DSIR’ dated May 2014. Para 4 of such Guidelines contains `Conditions subject to which approval is given’. Clause (xi) of para 4 runs as under: “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 expenditure 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 2014. The predecessor Guidelines of May 2010 did not contain any clause similar to clause (xi) of the 2014 Guidelines. Since the assessment 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 assessee was entitled to such deduction, which contention was strongly countered by the ld. DR. In order to appreciate the rival contentions, it would be befitting to have a glance at the relevant part of section 35(2AB) which is as under : “(2AB)(1) Where a company … 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, then, there 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 conditions for the weighted deduction, inter alia, that an eligible company incurs any expenditure on scientific research (other than cost 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 approved 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 prescribed authority approved the in- house R&D unit of the assessee situated 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 assessee’s approved R&D facility was engaged in designing and developing of Engine cooling systems and HVAC systems for vehicles. During the designing and development 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 14 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 Performance Evaluation Test under variant weather conditions artificially created that the assessee availed services from its three AEs situated 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 tabulated under Column “Outside India”, which was accepted by the TPO at ALP. 15. From the above discussion, it is abundantly clear that the total sum of Rs.9.61 crore incurred by the assessee outside India 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 from the R&D facilities of its AEs. Since the R&D facilities for which the assessee incurred costs outside India are neither of the assessee nor approved by the prescribed authority, there can be no question of granting 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 deduction is admissible in respect of expenditure incurred outside India amounting to Rs.9,61,80,237/-. 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 scientific nature “in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2).” Sub-section (2) of section 35, in turn, provides through sub-clause (ia) that for the purposes of clause (iv) of sub-section (1): `in a case where such capital expenditure is incurred after the 31st day of March, 1967, the whole of such capital expenditure incurred 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 of 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 deduction in the year of such incurring. Unlike sub-section (2AB), sub-section (1) does not require any specific approval from the prescribed authority for this purpose. Further, there is no stipulation that the expenditure should be incurred in India or outside or in-house R&D facility or otherwise, save and except as provided in other clauses of sub-section (1) of section 35. However, the amount of deduction u/s.35(1) is equal to the amount of capital expenditure on scientific research. 17. Coming back to the amount of expenditure incurred by the assessee outside India amounting to Rs.9,61,80,237/-, we find that the expenditure of revenue nature, namely, Rs.74,95,427/- was claimed by the assessee as revenue expenditure and accordingly 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 deduction u/s.35(1)(iv). We order accordingly. 15 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 18. The ld. DR took strong exception to the claim of the ld. AR for granting deduction of the capital expenditure on scientific research and development incurred outside India u/s.35(1)(iv). He submitted 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 fact 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 noticed that the amount of capital expenditure incurred on research and development outside India is eligible for deduction u/s.35(1)(iv). The same, therefore, has to be allowed as such. The ld. DR’s contention in this regard is sans merit and hence repelled. 19. To summarize, the entire amount of R&D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB); revenue R&D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself; total of capital R&D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act.” 10. Since the facts in the instant appeal are identical to the facts of the case already decided by the Tribunal in assessee’s own case in assessment year 2011-12 and which has been followed in assessment year 2012-13, therefore, in absence of any contrary material brought on record, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and the ground raised by the Revenue is dismissed. 11. So far as the grounds of appeal No.2, 3 and 4 raised by the Revenue are concerned, the same also stands covered in favour of the assessee by the decision of the Tribunal in assessee’s own case for the preceding assessment years i.e. 2001-02 to 2012-13. Merely because the Revenue has filed an appeal before the Hon’ble High Court by not accepting the decision of the Tribunal, the same cannot alter the situation unless and until such order of the Tribunal has been reversed by the Hon’ble High Court. Since the facts in the instant appeal are identical to the 16 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 facts of the case in the preceding assessment years in which the Tribunal has already taken a view treating the product development expenses as Revenue in nature, therefore, respectfully following the consistent view of the Tribunal in assessee’s own case for the preceding assessment years, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly, the grounds raised by the Revenue are dismissed. 12. Now, coming to the appeal filed by the assessee is concerned, the Ld. Counsel for the assessee fairly conceded that the issue stands decided against the assessee by the decision of the Tribunal. We, therefore, dismiss the grounds raised by the assessee. ITA No.96/PUN/2024 (AY 2015-16) 13. The grounds raised by the Revenue are as under: 1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in holding that the expenditure incurred by the assessee of Rs.4,09,65,000/- on product development was incurred only for up-gradation of existing products without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting patent for the products developed. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs.1,09,05,000/- on product development expenses as revenue expense without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting patent for the products developed and hence the expenses incurred were for a capital asset and therefore capital in nature. 3 On the facts and circumstances of the case and in law the Ld CIT(A) has erred in allowing expenditure of Rs.4,09,65,000/- on product development 17 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 expenses as revenue expense by relying upon the decisions of Hon'ble ITAT in assessee's own case for AY 2011-12, without appreciating that the sad decision has not been accepted by the Department and an appeal has been filed before the Hon’ble Bombay High Court 4. The appellant craves leave to add, amend, or alter any ground(s) of appeal at the time of hearing before the Hon’ble Tribunal. 14. After hearing both the sides, we find the above grounds are identical to the grounds of appeal No.2 to 4 raised by the Revenue in ITA No.127/PUN/2024. We have already decided the issue and dismissed the grounds raised by the Revenue. Following similar reasonings, the grounds raised by the Revenue are dismissed. CO No.12/PUN/2024 (AY 2015-16) 15. The concise grounds of objections raised by the assessee in CO are as under: 1. Against curtailment of revenue expenses by Rs.1,32,51,191/- incurred outside India out of total amount of expenses of Rs.2,58,02,061/- on product testing, validation and prototyping on research and development (R & D) claimed for weighted deduction u/s 35(2AB) of the Income Tax Act, 1961 (the Act). 2. Alternate claim for deduction of expenses on outside India testing and validation Rs.1,32,51,191/- in the course of R & D activities u/s 35(1)(iv) / 37(1) of the Income Tax Act, 1961. 16. The assessee has also raised additional ground of objection which reads as under: The learned Commissioner of Income Tax Appeals National Faceless Centre, Delhi (CTT A) erred in dismissing the grounds raised including ground in respect of alternate claim of the cross objector for deduction of expenses on approved in house Research & Development (R &D) to the extent of 100% under Section 35 (1) (iv) of the Income Tax Act 1961 (the Act) by self contradicting his findings in respect of the said claim. 18 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 Your cross objector prays that the alternate claim for deduction of expenditure on R & D which has impliedly been allowed by the learned Assessing Officer u/s 35 (1) (iv) of the Act for the A.Y. 2015-16 to the extent of 100% at Rs.1,32,51,191/- be upheld. 17. After hearing both the sides, we find the first ground of the CO has already been decided against the assessee which was fairly conceded by the Ld. AR for the assessee. In view of the above submission of the Ld. Counsel for the assessee, the first ground of the CO is dismissed. 18. So far as the second ground and the additional ground are concerned, the Ld. Counsel for the assessee at the outset submitted that this issue was raised before the Ld. CIT(A). However, the Ld. CIT(A) has given a concluding self contrary finding that the grounds raised by the assessee are dismissed. He submitted that the facts and figures are already on record and the Tribunal in assessee’s own case for assessment year 2011-12 has already decided the issue in assessee’s favour and in assessment year 2014-15 also the Ld. CIT(A) had allowed such claim of the assessee. He accordingly submitted that this alternate claim should be allowed. 19. After hearing both the sides, the additional ground of objection raised by the assessee is admitted for adjudication. 20. The Ld. Counsel for the assessee filed the following written submissions: Learned CIT(A) has confirmed the disallowance of weighted deduction (200%) and implicitly upheld the allowance of expenses at 100% granted by the AO u/s 35 (1) (iv). However the learned CIT(A) has given a concluding and self contradictory finding that the grounds raised by the assessee including the claim for deduction u/s 35 (1) (iv) are dismissed. (Page 19 of CITA order). 19 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 Honourable Tribunal in appellant's own case for the preceding A.Y. 2011-12 has after upholding the disallowance of claim for weighted deduction (at 200%) has allowed the alternate claim for deduction u/s 35 (1) (iv) of the outside India testing and validation expenditure. (Copy of ITAT Order PB Pages 42 to 44 Para 16 & 17). The issue stands covered in favour of the objector by the aforesaid decision of Honourable Tribunal in appellant's own case. It is prayed that the concluding self contradictory finding of the learned CIT(A) be reversed and 100% deduction as allowed by the AO be sustained. 21. The Ld. DR on the other hand submitted that only deduction u/s 35(1)(iv) can be allowed to the extent of capital expenditure incurred. He submitted that he has no objection if the matter is restored to the file of the Assessing Officer with a direction to verify the details and decide the issue on capital expenditure. 22. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) and the paper book filed on behalf of the assessee. We find an identical issue had come up before the Tribunal in assessee’s own case for assessment year 2012-13 where the Tribunal has observed as under: “18. Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case, we hold that the entire amount of R&D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB); revenue R&D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself; total of capital R&D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act.” 23. Respectfully following the decision of the Tribunal in assessee’s own case and in absence of any contrary material brought on record, this additional ground of objection raised by the assessee in CO is allowed. 20 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 ITA No.228/PUN/2024 (AY 2017-18) 24. The grounds raised by the Revenue are as under: Being aggrieved by the order passed by the learned CIT(A) National Faceless Appeal Centre the appellant viz. Mable Anand Thermal Systems Private Limited (previously named Mahle Behr India Private Ltd.) submits following grounds which are without prejudice to each other for your due and sympathetic consideration: On the facts & circumstances of the case and in law, 1. The learned CIT(A) erred in confirming disallowance of claim for weighted deduction amounting to Rs.23,89,05,598/- in respect of expenditure incurred by the appellant in the relevant previous year on scientific research undertaken by the appellant in its duly recognised in house research and development (R & D) facility u/s 35(2AB) of the Income Tax Act, 1961 (the Act). 2. The learned CIT(A) failed to appreciate that the said claim of the appellant u/s 35 (2AB) was made after duly complying with and in conformity with the relevant provisions of the Act including the submission of requisite information regarding the R & D expenditure in the prescribed forms and non receipt of the report from Department of Scientific and Industrial Research (DSIR) quantifying in Form 3 CL the said expenditure as per Rule 6 was a technicality beyond the control of the appellant and clearly was not fatal to the entitlement of the said claim. 3. Learned CIT A failed to appreciate that rejection of appellant's claim solely on the basis of non receipt of DSIR report especially when the appellant was held to be eligible to claim deduction of expenditure on in house approved R & D for the period anterior to the year in question did not serve the purpose of meeting ends of substantial justice. The AO erred in drawing an adverse and unwarranted inference that a notified rule takes precedence over the provisions of Law. 4. The CIT(A) erred in passing the order in haste without providing an opportunity of being heard i.e. opportunity to make submissions by appearing in virtual mode through video conferencing) and without appreciating that the facts in the impugned year in question were not similar to that of the AY 2011-12. 5. The learned CIT(A) after having confirmed denial of weighted deduction claimed u/s 35 (2AB) in respect of the salary of employees being revenue expenditure incurred on approved in house scientific research erred in not 21 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 allowing deduction thereof under the provisions of Section 35 (1) (iv) or under Section 37 of the Act. 6. The learned CIT(A) after having confirmed the denial of weighted deduction claimed u/s 35 (2AB) in respect of expenditure of capital nature on approved in house R & D viz. cost of tangible assets erred in not allowing deduction at one hundred percent under the provisions of Section 35(1) (iv) or depreciation thereon under Section 32 of the Act. 7. The appellant craves leave to add to, alter, amend or withdraw the grounds of Appeal. 25. After hearing both the sides, we find the above grounds are identical to the grounds of appeal No.2 to 4 raised by the Revenue in ITA No.127/PUN/2024. We have already decided the issue and the grounds raised by the Revenue have been dismissed. Following similar reasonings, the grounds raised by the Revenue are dismissed. 26. In the result, the appeal and the CO filed by the assessee are partly allowed and the appeals filed by the Revenue are dismissed. Order pronounced in the open Court on 22nd January, 2025. Sd/- Sd/- (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 22nd January, 2025 GCVSR 22 ITA No.127/PUN/2024 ITA No.333/PUN/2024 ITA No.96/PUN/2024 CO No.12/PUN/2024 ITA No.228/PUN/2024 आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. The concerned Pr.CIT, Pune DR, ITAT, ‘A’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune S.No. Details Date Initials Designation 1 Draft dictated on 03.01.2025 Sr. PS/PS 2 Draft placed before author 03.01.2025 Sr. PS/PS 3 Draft proposed & placed before the Second Member JM/AM 4 Draft discussed/approved by Second Member AM/AM 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order "