UNIPHOS ENVIROTRONIC PVT LTD,MUMBAI V. DCIT, CENTRAL CIRCLE 6(3), MUMBAI

ITA 2292/MUM/2025

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The case involves Uniphos Envirotronic Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals) that upheld the disallowance of a deduction claimed under section 35(2AB) of the Income-tax Act. The deduction was initially accepted by the Assessing Officer based on a Chartered Accountant's certificate but was later partially disallowed following a report from the Department of Scientific and Industrial Research (DSIR). The Tribunal examined whether the disallowance made under section 154 was appropriate and whether the differential amount could be claimed under section 37(1) as business expenditure.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361284 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: M/s. BEML Ltd. Vs. DCIT, Auto Ignition Ltd. in ITA No. 3248/Del/2017
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAVITA P. KAUSHIK
• Assessee Lawyers: KIRIT KAMDAR
• Keywords: Revenue expenditure; Business expenditure; Rectification of order
• Section: 143(3); 154; 37; 37(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SMT. RENU JAUHRI (ACCOUNTANT MEMBER) I.T.A. No. 2292/Mum/2025 Assessment Year: 2017-18 Uniphos Envirotronic Pvt. Ldt. 11, GIDC Estate Vapi, Valsad, Gujarat-396195 PAN:AABCU0216A Vs. DCIT, Central Circle 6(3) Mumbai Room No.450, Kautaliya Bhava, BKC, Bandra East, Mumbai-400051 (Appellant) (Respondent) Appellant by Shri Kirit Kamdar Respondent by Ms. Kavita P. Kaushik, SR. D.R. Date of Hearing 15.05.2025 Date of Pronouncement 22.05.2025 ORDER Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order dated 24/01/2025 passed by Ld. CIT(A) (54), Mumbai for assessment year 2017-18 on following grounds of appeal : “ Based on the facts and circumstances of the case, the Appellant respectfully craves to prefer an appeal against the order dated 24 January 2025 passed under section 250 of the Income-tax Act, 1961 ('the Act') by the Commissioner of Income-tax (Appeals) - 54, Mumbai ['CIT(A)'] in respect of the appeal filed against the 2 ITA No.2292/Mum/2025; A.Y. 2017-18 Uniphos Envirotronic Pvt. Ldt. rectification order dated 23 March 2023 passed under section 154 read withsection 143(3) of the Act, on the following grounds:- 1. On the facts and circumstances of the case and in law, the CIT(A) erred in not adjudicating ground no. 2.4 of the grounds of appeal which is reproduced hereunder: “2.4 Without prejudice to the above, even if the disallowance of expenditure incurred on research and development is to be made under section 35(2AB), the disallowance in respect of the same ought to be restricted to the extent of the weighted portion of deduction i.e. Rs. 19,22,808 since the said expenditure is otherwise allowable as business expenditure.\" 2. On the facts and circumstances of the case and in law, the CIT(A) ought to have restricted the disallowance of revenue expenditure on research and development to the extent of the weighted portion of deduction i.e. Rs. 19,22,808 instead of Rs.38,45,616 (being 200% of the amount short allowed by DSIR) since the said expenditure is otherwise allowable as deduction under section 35(1)(i) of the Act. The Appellant craves leave to add, alter, amend, delete or withdraw the ground of appeal at or before hearing of the appeal so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law.” Brief facts of the case are as under: 2. The assessee filed its return of income for year under consideration on 30/11/2017 declaring loss of Rs.2,10,50,147/-. Subsequently, the return of was revised on 20/03/2019 declared total loss of Rs.2,10,50,147/-. In the return of income the assessee claimed deduction u/s. 35(2AB) of the Act amounting to Rs.4,22,13,616/- computed at 200% of the eligible expenditure incurred on scientific research and development amounting to Rs. 2,11,06,808/-. The said claim was based on the certificate issued by the Charted Accountant. 2.1 During the assessment proceeding, the assessee was called upon the provide detailed note on the claim of deduction u/s. 3 ITA No.2292/Mum/2025; A.Y. 2017-18 Uniphos Envirotronic Pvt. Ldt. 35(2AB) of the Act. The assessee vide reply dated 16/12/2019 submitted working of the claim u/s.35(2AB) along with supportive documents. The Ld.AO while passing the assessment order u/s.143(3) accepted the claim of the assessee at Rs.4,22,13,616/-. 2.2 Subsequently, the Department Of Scientific And Industrial Research (DSIR) vide letter dated 6/11/2020 issued the reported under Form 3CL determining total eligible expenditure for the purposes of deduction u/s.35(2AB) at Rs.1,91,84,000/- as against Rs.2,11,06,808/- claimed by the assessee. 2.3 On receipt of the aforesaid report from DSIR, notice u/s.154 of the Act was issued to assessee proposing to disallow the deduction u/s.35(2AB) amounting to Rs.38,45,616/- being 200% of the deferential expenditure of Rs.19,22,808/- as not eligible expenditure. The assessee furnished its detailed reply on 15/03/2023 objecting the purposed rectification. The Ld.AO after considering the submissions of the assessee disallowed the entire claim of the assessee at Rs.38,45,616/-. Aggrieved by the order of the Ld.AO assessee is in appeal before the Ld.CIT(A). 3. The Ld.CIT(A) reproduced the submissions of the assessee and observed that, the Ld. AO restricted the deduction u/s. 35(2AB) to the extent of the expenditure approved by DSIR in Form 3CL. The assessee submitted that, even though DSIR restricted the expenditure, without prejudice the disallowance of deduction should be restricted to 100% instead of 200%. The Ld.CIT(A) however, upheld the disallowance made by the Ld.AO. 4 ITA No.2292/Mum/2025; A.Y. 2017-18 Uniphos Envirotronic Pvt. Ldt. Aggrieved by the order of the Ld. CIT(A) the assessee is in appeal before this Tribunal. 4. The Ld. AR submitted that, the assessee claimed salaries, wages and bonus to R&D staff amounting to Rs.1,60,97,258/- and research and development expenses amounting to Rs. 50,09,550/- as expenditure incurred on scientific research u/s.35(2AB) of the Act. Against the above claim, the DSIR allowed expenditure to the extent of 191.84 crores u/s.35(2AB) of the Act as under: Schedule No. Particulars Amount(Rs.) 22 Employee Benefit Expenses 1,60,97,258/- 23 Research & Development Expenses 50,09,550/- Total 2,11,06,808/- 4.1 The assessee thus cannot claim Rs.19,22,808/- being the difference between the claim as per the Charted Accountant certificate and the claim allowed as per form 3CL by DSIR authority. It is submitted that, the Ld.AO disallowed 200% of the differential amount as not eligible, which is not in accordance with the provisions of the Act. It is further submitted that, the Ld.AO did not consider the fact that, the assessee is be entitled to claim of deduction u/s.37 of the Act in respect of the said differential amount. The Ld.AR in support relied on the decision of Hon’ble Banglore Tribunal in ITA no.222/Bang/2023 and ITA no.291/Bang/2023 vide order dated 19/07/2023 M/s. BEML Ltd. Vs. DCIT 97 2023 wherein identical issue was considered. 4.2 On the contrary, the Ld.DR place reliance on the orders passed by the authorities below. We have perused the submissions advance by both sides in the light of record placed before us. 5 ITA No.2292/Mum/2025; A.Y. 2017-18 Uniphos Envirotronic Pvt. Ldt. 5. It is admitted fact that, at the time when assessment order was passed the report from DSIR was not received quantifying eligible expenditure in the hands of the assessee. The Ld.AO thus allowed to claim based on the certificate issued by the Charted Accountant, placed on page 54 of the paperbook. Subsequently, the Ld.AO initiated proceedings u/s.154 upon receipt of the DSIR report. This in our view cannot be done in a rectification proceeding as it – not a mistake apparent onward, and no verification can be carried out by the Ld.AO in rectification proceedings. It is noted that, the Ld. AO cannot even verify whether the deferential amount of Rs.19,22,808/- is eligible for deduction u/s. 37 of the Act. 5.1 The decision relied by the Ld.AR on identical issue followed the decision of Hon’ble Delhi Tribunal in Auto Ignition Ltd. in ITA No. 3248/Del/2017 vide order dated 11/08/2021 wherein, it was held that, the expenditure is otherwise allowable u/s.37(1) of the Act. The authorities below has not considered the allowability of the expenditure to be other with allowable u/s.37(1), as the Ld.AO at the threshold in the original assessment accepted entire expenditure to be used for the purpose of Research and development. The scope of verification gets limited to that extent in a proceeding u/s. 154 of the Act. Even otherwise the Ld. AO could not have made any disallowance u/s.154 based on DSIR report that was received by him subsequent to the completion of assessment proceeding. 5.2. Considering the totality of the facts, we direct the Ld.AO allow the claim of the differential amount as eligible expenditure u/s. 37(1) based on the certificate issued by the CA placed at 6 ITA No.2292/Mum/2025; A.Y. 2017-18 Uniphos Envirotronic Pvt. Ldt. page 54 of the paper book which has not been the refuted by the authorities below, in the original assessment order. Accordingly the grounds raised by the assessee stands allowed. In the result the appeal filed by the assessee stands allowed. Order pronounced in the open court on 22/05/2025 Sd/- Sd/- (RENU JAUHRI) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 22/05/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai "