2022 (10) TMI 844 - AT - Income Tax

Deduction allowable u/s 35(2AB) - Necessity of approval to be granted by prescribed authority - Scope of amendment - HELD THAT - ITAT Pune Tribunal in the recent case of DCIT v. Force Motors 2021 (9) TMI 244 - ITAT PUNE while dealing with identical issue held that prior to amendment in 2016, section 35(2AB) of the Act does not provide any methodology of approval to be granted by prescribed authority vis-a-vis expenditure from year to year and therefore, order of Assessing Officer in curtailing expenditure and consequent weighted deduction claimed under section 35(2AB) on ground that deduction cannot exceed claims approved by prescribed authority, had rightly been set aside. The Kolkota Tribunal in recent case of DCIT v. STP Ltd. 2021 (1) TMI 830 - ITAT KOLKATA held that prior to 1-6-2016, only requirement to claim deduction under section 35(2AB) was to receive recognition from prescribed authority since said recognition was obtained by assessee on 26-3-2013, deduction could not be denied merely because prescribed authority failed to send intimation in Form 3CL in respect of expenditure incurred by R D unit for relevant assessment year. Thus on a perusal of the various Rulings, the position is clear that prior to amendment introduced w.e.f. 01/07/2016, the deduction u/s 35(2AB) of the Act would be available to an assessee having an approved in-house R D facility by the prescribed Authority Act and there is no mention of approval of the quantum of expenditure in the law as it stood prior to that date. The mandate of quantification of expenditure has been put in place only w.e.f. 01.07.2016. In view of the above observations and judicial precedents on the subject, we allow the appeal of the assessee. Addition of PF/ESI expenses u/s. 36(1)(va) - assessee did not deposit employees' contribution to employees' account - HELD THAT - We note that the issue is squarely covered against the assessee by case of Gujarat State Road Transportation Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT wherein it was held that where assessee did not deposit employees' contribution to employees' account in relevant fund before due date prescribed in Explanation to section 36(1)(va), no deduction would be admissible even though he deposits same before due date under section 43B of the Act. Again, in the case of Pr. CIT v. Suzlon Energy Ltd. 2020 (2) TMI 792 - GUJARAT HIGH COURT held that where assessee had not deposited employees' contributions towards PF and ESI amounting Rs. 15.20 lakhs within prescribed period in law and Assessing Officer by invoking provisions of section 36(1)(va) read with section 2(24)(x) made addition of aforesaid amount to income of assessee, impugned addition made to income of assessee was justified. - Decided against assessee.

Summary

Issues Involved:
1. Addition of Rs. 18.93 lakhs under Section 35(2AB) of the Income Tax Act.
2. Addition of Rs. 91,215 out of PF/ESI expenses under Section 36(1)(va) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Addition of Rs. 18.93 lakhs under Section 35(2AB):

During the assessment proceedings, the assessee claimed a deduction under Section 35(2AB) amounting to Rs. 62,55,749/-. The Assessing Officer (AO) requested the Form 3CL certificate, which the assessee failed to provide, leading to the disallowance of the entire claimed expenditure. The assessee later submitted Form 3CL during the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], explaining the delay was due to the accountant's absence. CIT(A) accepted the Form 3CL and granted partial relief based on the approved amount in the form, directing the AO to verify the genuineness of the expenses.

The Tribunal referenced multiple judgments, including the Pune ITAT in Cummins India Ltd. and Force Motors, which clarified that prior to the 2016 amendment, the approval of the quantum of expenditure by the prescribed authority was not mandated. The Tribunal concluded that the deduction under Section 35(2AB) should be allowed based on the approval of the R&D facility, not the quantum of expenditure. Thus, the appeal on this ground was allowed.

2. Addition of Rs. 91,215 out of PF/ESI expenses under Section 36(1)(va):

The AO observed that the assessee made late payments of employees' contributions towards PF/ESI, disallowing Rs. 91,215 under Section 2(24)(x) read with Section 36(1)(va). The CIT(A) upheld this disallowance, citing the Gujarat High Court's decision in CIT vs. GSRTC, which held that deductions for employees' contributions are only permissible if deposited within the due dates specified in the relevant statutes.

The Tribunal noted that the issue was settled by the Jurisdictional High Court in the cases of Gujarat State Road Transportation Corporation and Pr. CIT v. Suzlon Energy Ltd., which affirmed that late deposits of employees' contributions do not qualify for deductions, even if deposited before the due date under Section 43B. Consequently, the Tribunal dismissed the appeal on this ground.

Conclusion:
The appeal was partly allowed, with the Tribunal allowing the deduction under Section 35(2AB) but dismissing the appeal regarding the disallowance under Section 36(1)(va). The order was pronounced in the open court on 19-10-2022.