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2019 (7) TMI 1214 - AT - Income TaxDeduction u/s 35(2AB) - in-house research and development - alleged that the assessee has not furnished copy of the agreement entered into with the prescribed authority for carrying out inhouse research and development facility - HELD THAT - Deduction u/s.35(1)(i) and Sec.35(2AB) are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) and under Sec.35(2AB) are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which Sec.35(2AB) applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. Of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No.3CM as required by Rule 6 (5A) of the Rules. In these facts and circumstances and in the light of the judicial precedents on the issue, 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 and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee - See M/S. MAHINDRA ELECTRIC MOBILITY LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4 (1) (2) , BANGALORE. 2019 (1) TMI 20 - ITAT BANGALORE As decided in M/S. SUN PHARMACEUTICAL INDUSTRIES LTD. 2019 (4) TMI 1727 - ITAT AHMEDABAD merely because the prescribed authority failed to send intimation In Form No. 3CL, would not be reason enough to deprive the assessee s claim of deduction under section 35(2AB) of the Act. Disallowance u/s 14A - assessee submitted that the assessee has earned exempt agricultural income but has no exempt income by way of dividend from shares and investments - HELD THAT - As agreed by both the parties, we set aside this issue to the file of the AO for fresh adjudication in accordance with law after verifying the fact. AO is directed to apply proposition of law laid down by the Hon ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT and not to disallow any expenditure in excess of exempt income earned by the assessee. These grounds are allowed for statistical purposes.
Issues Involved:
1. Deduction under Section 35(2AB) of the Income-tax Act, 1961. 2. Disallowance under Section 14A of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Deduction under Section 35(2AB) of the Income-tax Act, 1961: The assessee, a company engaged in the manufacture of chemicals and pharmaceuticals, claimed a deduction under Section 35(2AB) of the Income-tax Act for in-house research and development (R&D). The Assessing Officer (AO) rejected this claim due to the absence of an agreement with the prescribed authority and the lack of Form No. 3CL from the Department of Scientific and Industrial Research (DSIR) certifying the expenditure. The first appellate authority upheld this disallowance, emphasizing the necessity of Form No. 3CL as it certifies the quantum of R&D expenditure eligible for deduction. The assessee argued that the issue is covered in its favor by various judicial precedents, including decisions from the ITAT Bengaluru Bench in the case of M/s. Mahindra Electric Mobility Ltd. and other cases. The CIT(DR) contended that the assessee did not furnish the required agreement and that the AO did not grant 100% deduction on R&D expenditure. The Tribunal noted that the CIT(A) improperly differed from the decisions of the ITAT, which is not permissible due to judicial discipline. The Tribunal found that the assessee had indeed furnished the agreement and that the AO had allowed 100% deduction on R&D expenditure as revenue expenditure. The Tribunal referred to the case of M/s. Mahindra Electric Mobility Ltd., which held that the absence of Form No. 3CL does not preclude the allowance of deduction under Section 35(2AB). The Tribunal also cited various judicial precedents supporting this view, including the Hon'ble Delhi High Court in CIT vs. Sadan Vikas (India) Ltd. and the Pune ITAT in Cummins India Ltd. vs. DCIT. The Tribunal concluded that prior to 1.7.2016, Form 3CL had no legal sanctity, and the deduction under Section 35(2AB) should be allowed based on the approval in Form No. 3CM. The Tribunal directed the AO to grant the deduction under Section 35(2AB) of the Act, allowing the assessee's ground for all assessment years. 2. Disallowance under Section 14A of the Income-tax Act, 1961: The assessee contended that it had no exempt income from dividends on investments and that the only exempt income was agricultural income. The Tribunal agreed to set aside the issue to the AO for fresh adjudication after verifying the facts. The AO was directed to apply the proposition of law laid down by the Hon'ble Delhi High Court in Cheminvest Ltd. vs. CIT, which restricts disallowance under Section 14A to the amount of exempt income earned by the assessee. This ground was allowed for statistical purposes. Conclusion: The Tribunal allowed the appeals for statistical purposes, directing the AO to grant the deduction under Section 35(2AB) and to re-adjudicate the disallowance under Section 14A in accordance with the law and judicial precedents. All other grounds of the assessee were dismissed as not pressed. The order was pronounced in the open court on 19th July 2019.
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