2014 (10) TMI 171 - AT - Income Tax

Condonation of delay - Delay of 396 days Managing director of company undergone a surgery Held that - The MD of assessee-company was suffering from a serious disease pertaining to heart problem and ultimately had to undergo open heart surgery - such lapse on the part of the MD is understandable - A person recuperating from a disease like heart problem must be still under some stress and strain and for that reason many official acts and deeds required to be done quite possibly might have escaped his attention as decided in N BALAKRISHNAN Versus M. KRISHNAMURTHY 1998 (9) TMI 602 - SUPREME COURT OF INDIA - every lapse on the part of a litigant cannot be a reason enough to turn down his plea and shut the door against him unless the explanation smack of mala-fides or it is put forth as part of a dilatory strategy - there exists a genuine cause for not preferring the appeal in time by the assessee thus, this is a fit case for delay to be condoned delay condoned. Deduction u/s 35(2AB) R&D expenses - Manufacturing and sale of pesticides, bio-fertilisers and organic manures Whether non-availability of the approval in the prescribed form for the relevant assessment year could disentitle the assessee of deduction u/s. 35(2AB) or not - Held that - Following the decision in ACIT Versus Meco Instruments P. Ltd. 2010 (8) TMI 484 - ITAT, MUMBAI - Expenses were incurred by assessee towards R & D activity as AO himself has allowed 100% of the amount as deduction - once the R & D facility is approved, the entire expenditure incurred for R & D facility has to be allowed towards weighted deduction u/s. 35(2AB) of the Act - assessee's R & D facility having been approved by the prescribed authority and there being no dispute to the fact that assessee has incurred the expenditure towards R & D activities, the deduction claimed u/s. 35(2AB) by the assessee cannot be denied merely on the ground that prescribed authority has not submitted report in Form 3CL - when no show-cause notice has been issued to assessee for rejection of its application, assessee's application for approval of expenditure should be deemed to have been approved by the prescribed authority thus, the AO is directed to allow weighted deduction u/s. 35(2AB) Decided in favour of assessee. Deduction u/s. 80JJA Held that - AO has allocated R & D expenditure to both organic and nonorganic manure segments on the sole consideration that the other expenses are allocated to both the segments - it is the claim of assessee that R & D expenditure is only confined to non-organic segment - Considering the nature of dispute and also the fact that assessee needs to establish its claim by producing adequate evidence, the matter is to be remitted back to the AO for re-consideration Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of deduction claimed under Section 35(2AB) of the Income Tax Act.
3. Disallowance of deduction under Section 80JJA of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The appeal was filed with a delay of 396 days. The assessee submitted a delay condonation petition supported by an affidavit from the Managing Director (MD) of the company, explaining the delay due to the MD's serious illness and subsequent open heart surgery. The MD's inability to attend office regularly led to the lapse in filing the appeal on time. The learned AR argued that the delay was due to bona fide reasons and should be condoned, citing several judicial precedents including Collector, Land Acquisition v. Mst. Katiji & Ors. and N. Balakrishnan vs. M. Ramamurthy.

The Tribunal considered the submissions and the accompanying medical documents, concluding that the delay was understandable and not due to any mala fide intention. The Tribunal emphasized the principle that substantial justice should prevail over technical considerations, as held by the Supreme Court in Collector, Land Acquisition vs. Mst. Katiji & Ors. Hence, the delay was condoned, and the appeal was admitted for hearing on merit.

2. Disallowance of Deduction Claimed Under Section 35(2AB):

The assessee, engaged in manufacturing pesticides, bio-fertilizers, and organic manures, claimed a weighted deduction under Section 35(2AB) for R&D expenditure. The AO restricted the claim to 100% of the expenditure due to the non-furnishing of the approval report in Form 3CL from the prescribed authority (DSIR). The CIT(A) directed the AO to allow the weighted deduction upon receipt of Form 3CL.

The Tribunal noted that the assessee's R&D facility was approved by DSIR and had complied with the statutory requirements by applying in Form 3CK. The Tribunal referred to various judicial precedents, including ACIT v. Meco Instruments P. Ltd. and CIT vs. Sandan Vikas (India) Ltd., which held that the deduction should not be disallowed merely due to the non-submission of Form 3CL by DSIR. The Tribunal directed the AO to allow the weighted deduction, subject to any subsequent non-approval or lesser quantification by DSIR.

3. Disallowance of Deduction Under Section 80JJA:

The AO noted that the assessee had apportioned general expenses between organic and non-organic segments based on turnover but had not apportioned the R&D expenditure. The AO allocated the R&D expenditure proportionately, resulting in a reduced deduction under Section 80JJA. The CIT(A) confirmed the addition.

The Tribunal considered the assessee's claim that the R&D expenditure was solely for the non-organic segment and remitted the matter back to the AO for verification. The AO was directed to re-examine the issue and allow the deduction if the assessee could establish that the entire R&D expenditure pertained to the non-organic segment.

Conclusion:

The Tribunal condoned the delay in filing the appeal, directed the AO to allow the weighted deduction under Section 35(2AB) subject to DSIR's approval, and remitted the issue of deduction under Section 80JJA back to the AO for verification. The appeal was partly allowed.