ROTOFILT ENGINEERS LIMITED,AHMEDABAD V. THE ACIT, CIRCLE-3(1)(1), AHMEDABAD

ITA 1628/AHD/2025

AI Insights

M/s. Rotofilt Engineers Ltd. appealed against the order of the Commissioner of Income Tax (Appeals), which upheld the disallowance of a deduction claimed under section 35(2AB) for in-house R&D expenditures. The Tribunal noted that the Assessing Officer had not independently examined the revised claim during the set-aside proceedings and had relied on the original assessment order. The Tribunal also highlighted that the assessee had a recognized in-house R&D facility and that the approval from DSIR, although received after the expenditures were incurred, did not bar the claim for deductions. The Tribunal's decision was influenced by precedents from the Gujarat High Court, which supported the assessee's position.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 835380 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-08-2025
• Other Referred Cases: CIT -Vs- M/s. Claris Lifesciences Ltd [2010] 326 ITR 251, M/s. Banco Products (India) Ltd. -Vs- DCIT [2018] 95 taxmann.com 132
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Depreciation
• Section: 143(3); 32; 234B; 80IB

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH Before: DR. BRR Kumar, Vice President And Shri T. R. Senthil Kumar, Judicial Member M/s. Rotofilt Engineers Ltd. Plot No. 102, Phase-1, GIDC Industrial Estate, Opp. Torrent Power Station Vatva, Ahmedabad-382445 Gujarat, India PAN: AABCR3882K (Appellant) Vs The ACIT, Circle-3(1)(1), Ahmedabad (Respondent) Assessee Represented: Shri Sanjay R Shah, A.R. Revenue Represented:Shri Rajenkumar M Vasavda, Sr. D.R. Date of hearing : 06-01-2026 Date of pronouncement : 11-02-2026 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Assessee as the against appellate order dated 16-06-2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) r.w.s. 254 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2012-13. 2. This is second round of appeal by the assessee before this Tribunal. Brief facts of the case are that the Assessee is a company ITA No: 1628/Ahd/2025 Assessment Year: 2012-13 Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 2 engaged in the production of energy saving devices, pollution control equipment. It is recognized as in-house Research & Development Centre approved by Department of Science & Industrial Research [DSIR] since 12-05-2010 and availing exemption u/s. 35(2AB) of the Act. For the Asst. Year 2012-13 the Appellant filed its Return of income on 29-09-2012 showing loss of Rs 2,26,01,542/-. The appellant applied for recognition of their inhouse R & D unit to the Department of Scientific Research Organization (DSRO), which granted approval vide letter dated 12- 06-2014 for the period 01.04.2012 to 31.03.2016. Therefore, the appellant was under the wrong impression that they cannot claim benefit of deduction u/s.35(2AB) for the expenditure incurred prior to 01.04.2012. Accordingly, during the assessment proceedings the appellant withdrew its claim u/s.35(2AB) for the aforesaid sum of Rs.4,27,06,806/- and instead claimed depreciation on the R & D assets for a sum of Rs.26,26,717/-. 2.1. During the appellate proceedings, the appellant relied on judgments of Gujarat High Court in the case of CIT -Vs- M/s. Claris Lifesciences Ltd reported in [2010] 326 ITR 251 and M/s. Banco Products (India) Ltd. -Vs- DCIT reported in [2018] 95 taxmann.com 132, wherein it was held that even though the approval of DSRO has been received late and specifies the period for which deduction should be claimed, it does not bar the appellant to put up its claim for a deduction u/s.35(2AB) for the expenses incurred by it for the period prior to the dates mentioned in the approval. Accordingly, the appellant raised additional grounds before this Tribunal and claimed deduction u/s. 35(2AB) Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 3 for the aforesaid sum of Rs.4,27,06,806/- and withdrew claim for depreciation of Rs.26,26,717/-. 3. Co-ordinate Bench of this Tribunal vide its order dated 31- 07-2019 restored the matter back to the file of the Ld AO for adjudicating on this issue denovo after considering the judgements of the jurisdictional Gujarat High Court. 4. During the course of set aside proceedings, the Appellant vide its letter dated 05.07.2021 in response to the show cause notice issued by the learned AO dated 25.06.2021, filed a detailed reply as to why it is entitled to the benefit of deduction u/s.35(2AB). The appellant reduced its claim from the original amount of Rs.4,27,06,806/- to Rs.2,20,45,621/- on account of the fact that plant and machinery for a sum of Rs.1,11,68,208/- were not exclusively used for R&D purpose and hence weighted deduction u/s.35(2AB) in respect of this amount was reduced from original claim. At the same time, since the claim u/s.35(2AB) in respect of this amount of Rs.1,11,68,208/- was given up, the Appellant claimed deduction of depreciation for a sum of Rs.16,75,231/- on the said amount of Rs.1,11,68,208/- and thus the total claim of deduction u/s.35 (2AB) was arrived at an amount of Rs.2,20,45,621/-. 4.1. Perusal of the denova assessment order, clearly shows that from page 4 to 7 the Ld AO simply reproduced original assessment order. The Ld AO did not allow the revised claim of the Appellant u/s.35(2AB) for a sum of Rs.2,22,45,621/- in the set aside Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 4 proceedings without any independent finding of him and without looking at the reply filed by the Appellant dated 05.07.2021. 5. Aggrieved against the same, in the second round of appeal before CIT(A) who has confirmed the addition by observing as follows: “… 7.2 On perusal of the assessment order dated 30.09.2021 passed u/s 143(3) r.w.s 254 of the Act by AO, it is seen that the appellant is having machinery of Rs.3,63,42,780/- and during the year under consideration, machinery of Rs. 2,34,68,951/- is transferred to in-house R&D work. Therefore, machinery remained for manufacturing is only of Rs. 1,44,05,446/- which is less than 1/3 of total machinery. Production as well as Sale of the assessee is not affected though more than 60% of machinery is transferred to R&D work. The assessee had purchased new machinery of Rs. 9,85,679/- only in the year under consideration. Therefore, it is evidenced that the machinery claimed as transferred to in- house R&D work is used for manufacturing process also. Thus, it shows that no expenditure used in R&D work. 7.3 Further, the appellant was provided specific formats to furnish the details of salaried persons and the details of travelling expenditure, however, no such details were produced before the AO. Also, the appellant claimed expenditure of Rs. 6,03,916/- and Rs. 6,90,184/- for foreign travelling and local travelling as incurred for in house R & D work. However, the appellant failed to justify how the same is related to the in house R & D work except stating that Mr. Jitendra Soni travelled to various countries to explain the research and development work. However, no details of research paper issued or detail of new patent, if any, registered during the year. The assessee was unable to furnish the details of paper published or new patent registered. Therefore, the assessee failed to establish nexus between foreign travelling expenses and Research and Development work. 7.4 Further, in the previous years, the assessee had claimed deduction u/s 80IB of the Act on the said plant and machinery which claimed as used for R & D work. Hence, deduction u/s 35(2AB) cannot be allowed on plant and machinery on which deduction u/s 80IB of the Act has already been claimed. 7.5 Based on the detailed findings recorded in the assessment order passed u/s 143(3) r.w.s. 254 of the Act, it is evident that the Assessing Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 5 Officer has rightly disallowed the deduction claimed by the assessee u/s 35(2AB) of the Act amounting to Rs. 4,27,06,806/- The assessee failed to substantiate the claim with requisite documentary evidence, such as specific identification of R&D activities carried out, bifurcation of employee roles between R&D and non-R&D functions, justification for foreign and local travel expenses in relation to R&D work, and most importantly, the failure to furnish any details of research papers published or patents obtained. Moreover, it was observed that the deduction on the machinery claimed to be transferred to in-house R&D was previously claimed under section 80IB, representing dual claims on the same assets, which is not permissible as per I.T. Act. The AO's conclusion that the machinery was also used in manufacturing is well supported by the financial and operational data of the assessee, including unchanged sales despite the alleged transfer of over 60% of machinery to R&D. Additionally, the assessee itself withdrew the claim during the course of assessment proceedings, further affirming that the claim was not legally sustainable. 7.6 Despite the jurisprudence established by the Gujarat High Court in the cases of Claris Lifesciences Ltd. and Banco Products Ltd., where it was held that approval delays do not affect eligibility for the deduction, the substance of the claim must be examined. In the instant case, the assessee has failed to furnish satisfactory documentation and justification for its R&D expenditure. 7.7 Therefore, from the above it is evident the primary requirement as per the Act that the R&D expenses must be incurred by the appellant have not been fulfilled. Thus, the disallowance of the deduction under section 35(2AB) made by the AO is confirmed. In view of the above, Grounds no. 1 to 3 are dismissed to the extent of claim of deduction of 35(2AB) of the Act. However, the depreciation of Rs. 16,75,231/- as claimed by the appellant may be considered after due verification of the ITR and the subsequent assessment orders passed by the AO. Therefore, the said sub-ground is allowed for statistical purpose. 6. Aggrieved against the appellate order, the assessee is in second round of appeal before us raising the following Grounds of Appeal: 1. The Hon'ble Commissioner of Income-tax (Appeals) [CIT-A] erred in law and on facts of the case in upholding the disallowance made by Learned AO, amounting to Rs.2,03,70,390/- u/s 35(2AB) of the Income-tax Act, 1961 (the Act), in respect of in-house R&D expenditure claimed by the appellant. Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 6 2. The Hon'ble CIT(A) erred in upholding the disallowance under Section 35(2AB) made by the Learned AO, ignoring the Hon'ble ITAT's directions dated 31.07.2019 for de novo adjudication, relying instead on the quashed order of 17.02.2015 and failed to consider the appellant's submission dated 05.07.2021. 3. The Hon'ble CIT-A has erred in the law and facts of the case by confirming charging of interest under section 234B amounting to Rs. 5,09,581/- by the learned Assessing Officer. 4. The Appellant reserves the right to add, alter, amend and /or withdraw any of the above Grounds of Appeal. 6.1. Appellant also raised Additional Ground as follow: 1. Alternatively and without prejudice to the contention of the Appellant that amount spent on plant and machinery for research and development expenses for Rs.56,15,680/- is eligible for deduction u/s. 35(2AB), if the same is held to be disallowance, appropriate depreciation thereon u/s. 32 be granted to the Appellant. 7. The learned AR Sri. Sanjay R Shah appearing for the assessee submitted that both the Assessing Officer and the CIT(A) failed to comply with the binding directions of this Tribunal issued in the earlier round of proceedings. It was contended that the Authorities below mechanically relied upon the quashed original assessment order and ignored the revised claim and detailed evidences furnished by the assessee. It was further submitted that the assessee has an approved in-house R&D facility and has incurred eligible expenditure, which stands duly supported by books of account and audit reports. Reliance was placed on the binding judgments of the Hon’ble Gujarat High Court in Claris Lifesciences Ltd. and Banco Products (India) Ltd. Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 7 7.1. Ld AR also brought to our notice detailed submission made before Ld CIT[A] as follows: “23. Further, while passing the aforementioned order, the Id. AO raised certain objections therein which are being dealt with as under- a) \"The assessee had transferred the machinery from plant and machinery of Rs.2,34,68.951/- to in house R & D. Thus it is clear that the assessee had not incurred any expenditure either of capital or revenue nature on purchase of plant and machinery used in R&D work\" In this regard, it is respectfully submitted that the impugned Plant & Machinery was purchased with the specific intent of being used exclusively for research and development activities. It is submitted that as per the guidelines of the DSIR, the company is required to maintain separate R&D accounts, accordingly, the assets so acquired for the purpose of R&D department, were classified as such in the year under consideration in compliance with the guidelines of DSIR. Your honour would appreciate the fact that the deduction u/s.35(2AB) of the Act pertaining to Plant & Machinery not used exclusively for R&D purpose amounting to Rs.1,11,68,208/- was suo-motu disallowed by the appellant during the course of the set aside proceedings. The appellant had also submitted a list of plant and machinery duly classifying identifying it between R&D and non R&D assets, as can be seen from the Annexure-12 being submitted herewith this submission. The said annexure was already submitted before the learned AO vide the appellant's submission filed on 06.07.2021. Accordingly, the appellant has rightly claimed deduction u/s.35(2AB) of the Act in respect of the Plant and Machinery used for R&D department. However, the Ld. AO has merely quoted the observation of the erstwhile AO who passed the original assessment order u/s.143(3) of the Act and based solely on such statements, passed the present order against which the appellant is in appeal before your honour. Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 8 b) Furthermore, the learned Assessing Officer has also contended that the appellant claimed a deduction under section 801B earlier in respect of the said plant and machinery, thereby rendering the appellant ineligible for the deduction under section 35(2AB) of the Act. In this regard, it is submitted that- The appellant had previously claimed deduction under section 801B of the Act only until the Assessment Year 2010-11. Thereafter, no deduction u/s.801B of the Act was claimed by the appellant. The Plant and Machinery forming part of the R&D facility, for which deduction under section 35(2AB) has been claimed, were acquired post 31.03.2010 (i.e. after AY 2010-11) as can be seen from the Annexure-12, where the dates of acquisition of R&D assets are duly mentioned. Thus, it is evident that the appellant had never claimed any deduction under the 801B of the Act concerning the impugned assets. The aforesaid information was available with the learned AO while passing the impugned order as the same was submitted during the course of the set aside proceedings vide submission filed on 06.07.2021, however, the Id. AO did not care to appreciate the information so filed and proceeded to pass the order mechanically without independent verification and without application of mind. To further substantiate this, the statement of total Income for AY 2010-11 and AY 2012-13 are enclosed herewith as Annexure-14 & 15, respectively. In light of the above, the objection raised by the Ld. AO does not hold water as there is no factual or legal overlap in deduction claimed in respect of plant & machinery used for R&D purpose. It is once again reiterated that the appellant had not claimed deduction under section 801B of the Act in respect of Plant and Machinery used for R&D purpose. c) Regarding the allegation of the Ld. AO that more than 60% of the machinery has been transferred from Plant & Machinery to Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 9 Research and Development, yet there was no significant change in sales and salaries compared to the previous year. In this connection, it is submitted that the many activities of the appellant company are outsourced and hence, despite the transfer, there has been no substantial change in production and salaries. It is submitted that the appellant had duly submitted all the relevant details with the with the learned AO during the course of the proceedings, however the same were not considered while deciding on the matter and the impugned assessment order was passed denying the benefit of deduction under section 35(2AB) of the Act.” 8. Per contra the ld Departmental Representative relied on the orders of the lower authorities and requested to uphold the same. 9. We have carefully considered the rival submissions and perused the material available on record. At the outset, it is to be noted that the issue of claim of deduction u/s. 32[2AB] was restored to the file of the Assessing Officer for de-novo adjudication by this Tribunal vide order dated 31.07.2019. Once an assessment order is set aside, the Assessing Officer is duty bound to examine the issue afresh, uninfluenced by the findings recorded in the earlier order which no longer survives. From a perusal of the set- aside assessment order, it is evident that the AO has not undertaken an independent examination of the revised claim made by the assessee. Instead, he has relied upon the observations made in the original assessment order dated 17.02.2015. Such an approach is contrary to the directions of this Tribunal and is unsustainable in law. Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 10 9.1. The Hon’ble Gujarat High Court in Claris Lifesciences Ltd. (supra) has held that approval granted by DSIR is procedural in nature and that delay in granting approval does not affect the assessee’s eligibility for deduction under section 35(2AB) of the Act. This legal position has been reiterated in Banco Products (India) Ltd. (supra). In the present case, it is an admitted fact that the assessee had a recognized in-house R&D facility and that DSIR approval was granted covering the relevant period. Therefore, the assessee cannot be denied deduction merely on the ground that approval was granted subsequently. 9.2. The Ld CIT(A) has observed that since manufacturing activity continued despite transfer of substantial machinery to R&D, the machinery must have been used for manufacturing as well. We are unable to agree with this reasoning. R & D activity in a manufacturing concern is often integrated with the production process. Continuation of manufacturing operations by itself does not negate the existence of R&D activity. Moreover, the assessee has itself restricted the claim by excluding assets not exclusively used for R&D and claimed depreciation thereon. This aspect has not been disputed by the Revenue. 9.3. Further the lower authorities have disallowed the claim on the ground that the assessee failed to establish nexus of salary and travelling expenses with R&D activity. However, the statute does not mandate that deduction u/s. 35(2AB) is allowable only upon production of patents or research publications. What is required is that expenditure should be incurred on in-house R&D facility Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 11 approved by the prescribed authority. The appellant has furnished details of expenditure incurred in relation to its R&D facility. No specific defect or falsity has been pointed out by the Assessing Officer in such details. 9.4. Next objection by the Revenue is that the deduction under section 80-IB was claimed on the same machinery in earlier years. The claim under section 35(2AB) pertains to the year under consideration. No evidence has been brought on record to show that the assessee has claimed double deduction in the same assessment year on the same expenditure. 10. In view of the above discussion, we hold that the authorities below were not justified in disallowing the assessee’s claim under section 35(2AB) of the Act. The claim of ₹2,03,70,390/- is hereby allowed and consequentially the Additional ground is dismissed. 11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 11-02-2026 Sd/- Sd/- (DR. BRR KUMAR) (T.R. SENTHIL KUMAR) VICE PRESIDENT True Copy JUDICIAL MEMBER Ahmedabad : Dated 11/02/2026 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) Printed from counselvise.com I.T.A No. 1628/Ahd/2025 A.Y. 2012-13 Page No Rotofilt Engineers Ltd. vs. ACIT 12 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद Printed from counselvise.com "