2017 (8) TMI 248 - HC - Income Tax

Entitlement to deduction u/s 35 (2AB) - expenditure incurred for its R&D Centre at Rohtak - approval was granted in 2015 - assessee claim the deduction since inception i.e. AY 2011-12 - Held that - Both the R&D Centres, at Gurgaon and Rohtak have been granted recognition and the entire R&D expenditure was certified for AY 2011-12, but in the certification dated 9th March, 2015 only the Gurgaon R&D Centre found a mention. The Petitioner merely sought addition of the Rohtak R&D Centre in the said certification by providing the separate figures for each of the Centres. The non-addition of the Rohtak R&D Centre and instead deletion of the expenditure incurred on the same by way of issuance of the Corrigendum dated 7th May, 2015, from the certification dated 9th March, 2015, is clearly unsustainable. Such an act on behalf of the DSIR results in completely depriving the Petitioner from claiming deductions of R&D expenses qua its Rohtak R&D Centre. Section 35 (2AB) clearly provides that any expenditure incurred by a party on its R&D facility except, insofar as it relates to land and building is liable to be allowed to be claimed as deduction (twice the amount of expenditure). A perusal of the scheme of the Act especially Sections 35 (2AB), 35A and 35AB reveals in no uncertain terms, that the purpose behind these provisions is to provide impetus for research, development of new technologies, obtaining patent rights, copyrights and know-how. In the present case, it could be true that there are some errors in the Petitioner s application dated 31st October, 2011, however, one cannot ignore that since 2011, the Petitioner has been candid with the DSIR about its expenses for the Gurgaon and Rohtak R&D Centres and has given the break-up of the expenditure incurred thereupon; has submitted the Auditor s certificate required for the same; has entered into an agreement with the DSIR as required for sharing of technologies; and has also repeatedly requested for certification of the expenditure incurred by it. Under such circumstances, an isolated error in an application cannot result in the entire benefit itself being refused to the Petitioner resulting in it being deprived of the deduction as permissible under Section 35 (2AB). Thus this Court holds that the Petitioner is entitled to deduction under Section 35 (2AB) of the Act for the expenditure in respect of its Rohtak R&D Centre as per the provisions of Section 35 (2AB) for AYs 2011-12, 2012-13 and 2013-14. - Decided in favour of assessee.

Summary

Issues Involved:
1. Entitlement to deduction under Section 35 (2AB) of the Income Tax Act, 1961 for R&D expenditure incurred at the Rohtak R&D Centre for AY 2011-12, 2012-13, and 2013-14.
2. Validity of the Corrigendum dated 7th May, 2015 issued by DSIR reducing the R&D expenditure eligible for deduction.
3. Requirement of certification in Form 3CL from DSIR for claiming deductions.
4. Legislative intent behind Section 35 (2AB) and its interpretation.

Issue-Wise Detailed Analysis:

1. Entitlement to Deduction under Section 35 (2AB) for Rohtak R&D Centre:
The petitioner, Maruti Suzuki India Ltd., sought deductions under Section 35 (2AB) for R&D expenditure incurred at its Rohtak Centre for AY 2011-12, 2012-13, and 2013-14. The petitioner had kept the DSIR informed about the Rohtak Centre since its inception and had submitted necessary documents and auditor's reports delineating the expenses for both Gurgaon and Rohtak Centres. Despite this, the DSIR initially did not recognize the Rohtak Centre's expenses, leading to the issuance of a Corrigendum reducing the eligible R&D expenditure.

2. Validity of the Corrigendum dated 7th May, 2015:
The Corrigendum issued by DSIR reduced the R&D expenditure eligible for deduction by excluding the expenses related to the Rohtak Centre. The petitioner argued that this was arbitrary and contrary to Section 35 (2AB), which aims to encourage R&D activities. The court found that the petitioner had fulfilled all necessary conditions and had been transparent with DSIR about the Rohtak Centre's expenses. The court held that the Corrigendum was unsustainable and set it aside.

3. Requirement of Certification in Form 3CL:
The petitioner had submitted applications for certification of R&D expenses, including those for the Rohtak Centre. The DSIR's refusal to include the Rohtak Centre in the certification despite having granted recognition was deemed unreasonable. The court directed DSIR to issue fresh certification in Form 3CL for the Rohtak Centre for the relevant assessment years.

4. Legislative Intent behind Section 35 (2AB):
The court emphasized that the legislative intent behind Section 35 (2AB) is to promote innovation and R&D in India. The provision allows for deductions on R&D expenditure to encourage companies to invest in research. The court referred to precedents such as Sandan Vikas and Claris Lifesciences, which clarified that the date of recognition or approval by DSIR is not a cut-off for eligibility of deductions. The existence of recognition is sufficient for claiming deductions.

Conclusion:
The court concluded that the petitioner is entitled to deductions under Section 35 (2AB) for the Rohtak R&D Centre for AY 2011-12, 2012-13, and 2013-14. The DSIR was directed to issue fresh certification in Form 3CL for the Rohtak Centre, and the Income Tax Department was instructed to grant the consequential deductions. The writ petition was allowed in favor of the petitioner.