2023 (1) TMI 860 - AT - Income Tax

Weighted deduction u/s 35(2AB) - absence of requisite approval u/s 35(2AB) - As per AO recognition of R D facilities is different from the requisite approval as envisaged u/s 35(2AB) - whether the respondent-assessee is entitled for deduction u/s 35(2AB) of the Act in respect of expenditure incurred on R D under the provisions of section 35(2AB) of the Act or not? - HELD THAT - Material on record clearly indicates that there was no requisite approval as envisaged u/s 35(2AB), which is condition precedent for availing the benefit of deduction u/s 35(2AB) of the Act. It is also settled principle of construction while construing the provisions of exemption, the provisions should be construed strictly as laid down by the Constitution Bench of the Hon ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs Dilip Kumar Company Others 2018 (7) TMI 1826 - SUPREME COURT CIT(A) had fell in serious error in allowing the deduction u/s 35(2AB) in the absence of requisite approval u/s 35(2AB) of the Act. The ld. CIT(A) lost sight of the fact that the recognition of R D facilities is separate and distinct from approval of R D facilities for the purpose of deduction u/s 35(2AB) of the Act. Therefore, the order of the ld. CIT(A) is perverse and passed in perfunctory manner. In the circumstances, we set-aside the order of the ld. CIT(A) and restore the order of the Assessing Officer. Thus, the ground of appeal filed by the Revenue stands allowed.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Entitlement to weighted deduction under Section 35(2AB) of the Income Tax Act.
3. Validity of the approval from the Department of Scientific and Industrial Research (DSIR).

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessment for the year 2010-11 was reopened based on information from the Ministry of Science and Technology, indicating that no approval under Section 35(2AB) was granted to the assessee from 01.04.2005 to 31.03.2009. The Assessing Officer issued a notice under Section 148, and the reassessment was completed denying the weighted deduction under Section 35(2AB) but allowing the expenditure as "revenue expenditure."

2. Entitlement to Weighted Deduction under Section 35(2AB):
The main issue was whether the assessee was entitled to a weighted deduction under Section 35(2AB) for R&D expenditure. The CIT(A) allowed the deduction based on the recognition of the R&D facility by DSIR, referencing previous Tribunal decisions. However, the Revenue contended that without the requisite approval under Section 35(2AB), the CIT(A) should not have granted the deduction.

3. Validity of the Approval from DSIR:
The CIT(A) relied on the recognition of the R&D facility by DSIR, but the Revenue argued that recognition and approval under Section 35(2AB) are distinct. The Tribunal emphasized that the approval originally granted was valid only until 31.03.2009, and the extension was denied due to non-compliance with prescribed conditions. The Tribunal held that without the requisite approval, the assessee could not claim the deduction under Section 35(2AB).

Tribunal's Findings:
- The Tribunal found that the assessee did not have the requisite approval under Section 35(2AB) for the relevant period, which is a condition precedent for availing the deduction.
- The Tribunal noted that the CIT(A) erred in granting the deduction based on recognition alone, without considering the specific approval required under Section 35(2AB).
- The Tribunal referenced the principle of strict construction for exemption provisions, as laid down by the Supreme Court in Commissioner of Customs (Import), Mumbai Vs Dilip Kumar & Company & Others.

Outcome:
- The Tribunal set aside the order of the CIT(A) and restored the order of the Assessing Officer, denying the weighted deduction under Section 35(2AB).
- The Tribunal's decision in ITA No.1353/PUN/2019 for A.Y. 2010-11 was applied mutatis mutandis to the remaining appeals for A.Y. 2011-12 to 2015-16.
- All six appeals filed by the Revenue were allowed.

Conclusion:
The Tribunal concluded that the assessee was not entitled to the weighted deduction under Section 35(2AB) due to the lack of requisite approval from DSIR, and upheld the Assessing Officer's denial of the deduction. The CIT(A)'s decision was found to be perverse and passed in a perfunctory manner.