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2021 (1) TMI 830 - AT - Income TaxDeduction u/s 35(2AB) - in-housing Scientific Research and development expenditure of the Sipaigachhi Unit, where the DSIR does not approve of such expenditure in the Form 3CL - Whether the CIT(A) was correct in holding that in order to avail up the deduction u/s 35(2AB) irrespective of the date of recognition and the cut off date mentioned in the certificate of the prescribed authority the existence of recognition is required? - scope of amendment - HELD THAT - The provision we note nowhere suggests or implies that R D facility should be approved from a particular date and in other words, it is nowhere suggested that date of approval only will be cut off date for eligibility of weighted deduction on the expenses incurred from that date onwards. The statute does not say that and therefore, AO erred in prescribing something which is not in the statute and thus not allowing the claim on this reason also is erroneous. It is only w.e.f 01.07.2016 with the amendment to Rule 6(7a)(b) of the Rules that the quantification of the weighted deduction u/s 35(2AB) of the Act has significance. We note that for claiming deduction u/s 35(2AB) the assessee should be engaged in manufacture of certain articles or things as stipulated in that provision. It is not in dispute that the assessee is engaged in the business to which Section 35(2AB). It is not in dispute that the assessee in this case received recognition of its R D unit at Sipaigachi vide letter dated 26.03.2013 vide page 73 of PB. In the aforesaid facts and circumstances we are of the view that the deduction u/s 35(2AB) of the Act ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the assessee. Neither the prescribed authority (Refer page 82 83 of PB) nor the AO has applied the mind as to the expenditure, actually incurred for the R D facility at Sipaigachi. Merely because the prescribed authority (DSIR) failed to send intimation in Form 3CL in respect of expenditure incurred by R D unit at Sipaigachi would not be reason enough to deprive the assessee s claim of deduction u/s 35(2AB) - Since the verification has not been done by the prescribed authority (DSIR) or the AO, we set aside the impugned order of the Ld. CIT(A) and remand this issue for the limited purpose to the file of AO to verify the actual expenditure incurred by the assessee in respect of its R D establishment at Sipaigachi - Appeal of the revenue is partly allowed.
Issues Involved:
1. Whether the Ld. CIT(A) was correct in allowing the deduction of ?2,55,25,677/- under section 35(2AB) of the Income Tax Act, 1961 for in-house Scientific Research and Development expenditure of the Sipaigachhi Unit without DSIR approval in Form 3CL. 2. Whether the Ld. CIT(A) was correct in holding that the existence of recognition is required to avail the deduction under section 35(2AB) irrespective of the date of recognition and the cut-off date mentioned in the certificate of the prescribed authority. Issue-wise Detailed Analysis: 1. Allowing Deduction Without DSIR Approval in Form 3CL: The AO observed that the assessee claimed a deduction of ?2,79,56,896/- under section 35(2AB) of the Income Tax Act, 1961. However, the DSIR in Form 3CL approved only ?22.90 Lakhs for the Goa R&D unit and did not approve the expenses for the Sipaigachhi unit. The AO disallowed the deduction for the Sipaigachhi unit on the grounds that the DSIR did not certify the expenses in Form 3CL and the recognition was granted only on 26.03.2013. The Ld. CIT(A) allowed the deduction based on the Gujarat High Court's decision in Banco Products (India) Ltd. vs. DCIT, where it was held that once the R&D facility is approved, the entire expenditure incurred should be allowed for weighted deduction, irrespective of the date of approval. The Tribunal noted that prior to 01.07.2016, Form 3CL had no legal sanctity, and the quantification of the deduction by DSIR became significant only after the amendment to Rule 6(7A)(b) of the Income Tax Rules, 1962. 2. Existence of Recognition Irrespective of the Date of Recognition: The Tribunal referred to the provisions of Section 35(2AB) and the relevant rules, which state that the deduction is allowed for expenditure incurred on an approved in-house R&D facility. The Tribunal cited the Gujarat High Court's decision in CIT vs. Sun Pharmaceutical Industries Ltd., which held that the date of approval by DSIR is not a cut-off date for eligibility of weighted deduction. The Tribunal emphasized that the statute does not specify that the approval date should be the cut-off date for allowing deductions. The Tribunal concluded that the AO's disallowance based on the date of approval and the absence of Form 3CL was erroneous. The Tribunal remanded the issue to the AO for verification of the actual expenditure incurred by the assessee for the R&D facility at Sipaigachi, as neither the prescribed authority nor the AO had verified the expenditure. Conclusion: The Tribunal upheld the Ld. CIT(A)'s decision to allow the deduction under section 35(2AB) for the Sipaigachhi unit, emphasizing that the recognition of the R&D facility by DSIR is sufficient for claiming the deduction, irrespective of the date of approval. The Tribunal remanded the case to the AO for verification of the actual expenditure incurred by the assessee for the Sipaigachhi R&D unit. The appeal of the revenue was partly allowed.
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