9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (3) TMI 710 - AT - Income TaxDeduction u/s 35(2AB) - expenditure incurred on R D centre - AO held that in the absence of Form 3CL, such deduction is not allowable - CIT (A) supported the contention of the Assessing Officer reiterating that in the absence of Form 3CL, the claim of the assessee cannot be quantified and verified - HELD THAT - It is the responsibility of the AO to obtain the copy from the DSIR. We also find that the DSIR has also submits copy to the Jurisdictional Chief Commissioner of Income Tax too. There was no dispute regarding the expenditure incurred by the assessee. With regard to the issue before hand, we have also gone through the judgment of Hon ble High Court of Gujarat in the case of CIT Vs Sun Pharmaceutical Industries Ltd. 2017 (9) TMI 1416 - GUJARAT HIGH COURT where in it was held that having heard learned counsel for the parties and having pursued the orders on record, we are broadly in agreement with the view of the Tribunal. Undisputedly, the research and development facility set up by the assessee was approved by the prescribed authority and necessary approval was granted in the prescribed format. The communication in form 3CL was thereafter, between the prescribed authority and the department. If the same was not so surely the assessee cannot be made to suffer. To this extent the Tribunal was perfectly correct and the Commissioner was not, in observing that in absence of such certification, claim of deduction under Section 35(2AB) was not available. Tribunal in the case of Century Seeds Pvt. Ltd. Vs DCIT 2018 (8) TMI 663 - ITAT HYDERABAD held that AO has correctly allowed the deduction and there is no error in the order passed by AO u/s 143(3). Once a research facility is approved entire expenditure incurred on department of R D has to be allowed weighted deduction as provided u/s 35(2AB). Relying on the case of DCIT Vs Famy Care Ltd. 2014 (11) TMI 987 - ITAT MUMBAI on the same facts, the Tribunal in the case of Efftronics Systems Pvt. Ltd. 2016 (11) TMI 1251 - ITAT VISAKHAPATNAM laid down the proposition that in case Form 3CL is not available, the appellant should not be penalized and weighted deduction cannot be denied. Similarly, the ITAT Mumbai Bench in the case Mahindra Mahindra Ltd. Vs DCIT 2013 (9) TMI 522 - ITAT, MUMBAI wherein it was held that while deciding the issue related with benevolent provisions like 35(2AB), liberal and practical approach should be followed. Hence we hold that the assessee should not be shorned of the legal right bestowed upon by the provisions of the Income Tax Act. The revenue may disallow the claim of the asseseee if it can prove that the claim of the assessee is wrong after obtaining the report in Form 3CL from the concerned authority. The matter is being sent back to the file of the Assessing Officer. Education Cess disallowance - addition u/s 40(a)(ia) - allowable revenue expense u/s 37(1) - HELD THAT - Surcharge on income-tax finds place in the First Schedule, but that is not the case so far as Education Cess is concerned. Therefore, the education cess on this reasoning cannot be equated as tax or surcharge. Based on this, it can be said that since the word 'Cess' is not specifically included in the definition, it cannot be considered a part of tax, and accordingly, it should not be disallowed in u/s 40(a)(ii) of the Act. We also find that the proceeds from collection of Education Cess are not credited to Consolidated Fund but to a non-lapsable Fund for elementary education - Prarambhik Shiksha Kosh . Since the proceeds from collection of Education Cess are kept separate for a specified purpose, applying the principles in the aforesaid decision of Apex Court in the case of M/s Dewan Chand Builders 2011 (11) TMI 405 - SUPREME COURT , it can be said that the same is not in the nature of tax. Hence, it is allowable as deduction. Education Cess is not of the nature described in sections 30 to 36, Education Cess is not in the nature of capital expenditure, Education Cess is not personal expense of the Assessee, it is mandatory for it to pay Education Cess and for the purpose of computation of Education Cess, the Income Tax is taken as the criteria for computational purpose. Thus, the expense of Education Cess is mandatory expenses to be paid but does not fall under capital expense and personal expenditure and hence may be allowed as deduction. Referring to provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66ITJ(19), the orders of Co-ordinate Benches of ITAT and judicial pronouncements we hereby hold that the assessee is eligible to claim the deduction of the Education Cess as per the provisions of Section 37. Incentive under Foreign Trade Policy - assessee has received incentive under Focus Product Scheme (FPS) from Government of India for exports of goods - HELD THAT - There is no dispute that this incentive is an export incentive. The matter has been well considered by the order of the Co-ordinate of ITAT Chennai in the case of Eastman Exports Global Clothing Pvt. Ltd. 2016 (7) TMI 951 - ITAT CHENNAI The order dealt with the similar issue of market linked focus products scheme scripts has been deliberated and the same has been treated as a capital receipt in view of the decision of the Hon ble Apex Court in the case of Ponni Sugars and Chemicals Ltd. 2008 (9) TMI 14 - SUPREME COURT Thus MLFPS received by the assessed is to be treated as capital receipt only . Appeal of the assessee is allowed.
Issues Involved:
1. Deduction under Section 35(2AB) of the Income Tax Act. 2. Deduction of Education Cess as an allowable business expenditure. 3. Treatment of Focus Product Scheme (FPS) incentive received under Foreign Trade Policy as capital receipt. Issue-wise Detailed Analysis: 1. Deduction under Section 35(2AB) of the Income Tax Act: The assessee claimed a weighted deduction of ?1.21 Cr under Section 35(2AB) for R&D expenditure. The Assessing Officer (AO) disallowed the claim due to the absence of Form 3CL. The CIT(A) upheld this decision, emphasizing the necessity of Form 3CL for quantifying and verifying the claim. The assessee argued that their R&D center is recognized by DSIR and has been continuously submitting requisite information. They contended that Form 3CL was submitted later, and 95% of the expenditure was allowed by DGIT. The tribunal noted that the responsibility to obtain Form 3CL lies with the AO and not the assessee. Citing precedents from the Gujarat High Court and various ITAT benches, the tribunal concluded that the assessee should not be penalized for the absence of Form 3CL if the R&D expenditure is genuine and recognized. The matter was remanded back to the AO for reconsideration. 2. Deduction of Education Cess as an Allowable Business Expenditure: The assessee raised an additional ground for the deduction of Education Cess, which was initially dismissed by CIT(A) for not emanating from the assessment order. The tribunal admitted the additional ground, referencing the Supreme Court's judgment in National Thermal Power Co. Ltd. vs. CIT. The tribunal analyzed Section 40(a)(ii) and related provisions, noting that Education Cess is not explicitly included in the definition of 'tax'. They referred to CBDT Circular No. 91/58/66-ITJ(19), which clarified that 'cess' is not disallowed under Section 40(a)(ii). Citing judgments from various High Courts and ITAT benches, the tribunal concluded that Education Cess is an allowable expenditure under Section 37 of the Income Tax Act. 3. Treatment of Focus Product Scheme (FPS) Incentive as Capital Receipt: The assessee received an incentive under the FPS for exporting goods, arguing that it should be treated as a capital receipt as it was intended to offset infrastructural inefficiencies and promote long-term market exploration. The AO treated it as revenue, linked to the percentage of FOB value for exports. The tribunal examined the Foreign Trade Policy and relevant legal frameworks, noting that the incentive aimed to promote market diversification and technological upgradation. They referenced the ITAT Chennai's decision in Eastman Exports Global Clothing Pvt. Ltd., which treated similar incentives as capital receipts based on the Supreme Court's judgment in Ponni Sugars and Chemicals Ltd. The tribunal concluded that the FPS incentive should be treated as a capital receipt and allowed the assessee's claim. Conclusion: The tribunal allowed the appeal of the assessee on all grounds: - The deduction under Section 35(2AB) was remanded back to the AO for reconsideration. - The Education Cess was deemed an allowable expenditure under Section 37. - The FPS incentive was treated as a capital receipt.
|
