2020 (8) TMI 240 - HC - Income Tax

Research and Development expenditure u/s 35(AB)(2) - weighted deduction at the rate of 200% - HELD THAT - It is not in dispute that the appellant is having it's registered office at Chennai and manufacturing units at Hosur, Pune, Bangalore and Himachal Pradesh, for manufacture seats and parts of seats for automobile application. A perusal of Form 3CL dated 14.08.2015 appended to the typed set of documents, does not throw any light (or) supportive of the case of the appellant / assessee that the benefits of the research and development done by the Hosur unit having been availed by their manufacturing unit at Himachal Pradesh. In order to draw presumption that Himachal Pradesh unit does not have availed the benefit of the research and development done by the Hosur Unit, no material whatsoever has been placed by the appellant/assessee, before the assessing officer. It is not the case of the assessee that the unit at Himachal Pradesh is having it's own Research and Development Unit. Considered opinion of this Court is that the Assessing Officer as well as CTI (Appeals) and the ITAT, had thoroughly gone into the factual aspects and legal position and rightly arrived at the conclusion as to the plea made by the appellant. In sum and substance, the findings rendered by the authorities are concurrent in nature and therefore, there are no substantial questions of law arise for consideration in this appeal. - Appeal dismissed.

Summary

Issues Involved:
Appeal under Section 260A of the IT Act against the order of the Income Tax Appellate Tribunal confirming the order of the Commissioner of Income Tax (Appeals) regarding the allocation of Research and Development expenditure for manufacturing units.

Analysis:

Issue 1: Allocation of Research and Development Expenses
The appellant, engaged in manufacturing seating systems, claimed a weighted deduction for Research and Development expenditure under Section 35(AB)(2) of the IT Act. The Assessing Officer found that the benefits of Research and Development from the Hosur Unit were utilized by other units, including Himachal Pradesh, leading to the computation of taxable income. The Commissioner of Income Tax (Appeals) concurred with this view, allowing only partial deduction under Section 80IC. The ITAT upheld this decision, stating that benefits were availed by all units, leading to the apportionment of expenses. The appellant challenged this allocation, arguing that there was no substantial evidence supporting the assumption that the benefits extended to all units. However, the Court found that no material was presented to prove otherwise, and the findings of the authorities were based on factual analysis, leading to the dismissal of the appeal.

Issue 2: Legal Precedents
The appellant relied on legal precedents to support their argument for interference in the allocation of Research and Development expenses. The Court considered cases such as Bush Boake Allen India Ltd., Brakes India Ltd, and Zandu Pharmaceuticals Works Limited, where decisions favored the appellants based on specific circumstances. However, the Court distinguished these cases from the current situation, emphasizing the lack of evidence supporting the appellant's claim that the benefits were not extended to the Himachal Pradesh unit. The Court also highlighted the principle that deductions should be based on net income, as established in legal precedents like Commissioner of Income Tax v. ECS Ltd.

Conclusion:
The Court dismissed the appeal, affirming the ITAT's decision regarding the allocation of Research and Development expenses. It was concluded that the findings of the authorities were based on thorough factual analysis and legal considerations, with no substantial questions of law arising for further consideration. The lack of evidence supporting the appellant's claim regarding the benefits of Research and Development to the Himachal Pradesh unit led to the rejection of the appeal.