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TMI Blog2014 (10) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... case for delay to be condoned – delay condoned. Deduction u/s 35(2AB) – R s R s application for approval of expenditure should be deemed to have been approved by the prescribed authority – thus, the AO is directed to allow weighted deduction u/s. 35(2AB) – Decided in favour of assessee. Deduction u/s. 80JJA – Held that:- AO has allocated R & D expenditure to both organic and nonorganic manure segments on the sole consideration that the other expenses are allocated to both the segments - it is the claim of assessee that R & D expenditure is only confined to non-organic segment - Considering the nature of dispute and also the fact that assessee needs to establish its claim by producing adequate evidence, the matter is to be remitted back to the AO for re-consideration – Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... Collector, Land Acquisition v. Mst. Katiji & Ors. (167 ITR 471) (SC) b) Venkatadri Traders Ltd. vs. CIT (248 ITR 681) (Mad) 4. The learned AR submitted, there is a lapse on the part of the MD in taking appropriate steps in filing the appeal but that alone cannot be enough to turn down assessee's plea for condoning delay. In this context, the learned AR relied upon the decision of Hon'ble Supreme Court in case of N. Balakrishnan vs. M. Ramamurthy (1998) 7 SCC 123. On the basis of the above said submission, learned AR requested for condonation of delay. 5. The learned DR, On the other hand, objected to assessee's prayer for condoning the delay. 6. We have considered submissions of parties and perused materials on record on the issue of delay. From the facts stated in delay condonation petition and the affidavit as well as accompanying documents like medical report, prescription, etc., it is established that the MD of assessee-company was suffering from a serious disease pertaining to heart problem and ultimately had to undergo open heart surgery. Though subsequently he resumed his official work from July 2013 but filing of appeal against order of CIT(A) escaped his at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital expenditure of ₹ 10,55,59,759 includes deduction of ₹ 72,75,245 towards 150% weighted deduction u/s. 35(2AB) on revenue expenditure of ₹ 48,50,153. As noted by AO, during the assessment proceedings when assessee was called upon to furnish approval from prescribed authority in support of claim u/s. 35(2AB), assessee failed to furnish the same. Hence, AO restricted the claim to 100% of the expenditure i.e., ₹ 48,50,163 and differential amount of ₹ 25,24,081 was added to income of assessee for the impugned assessment year. Being aggrieved of such addition assessee preferred appeal before CIT(A). 9. In the course of hearing before CIT(A) it was submitted by assessee that scientific research facility was duly approved by DSIR in the year 2003 and such approval has been renewed from time to time and as of now approval is extended till 31.3.2015. In support of such contention assessee also submitted copies of the approval. So far as certification of expenditure incurred by assessee it was submitted, the company has applied for necessary certification of the amount spent by making an application in Form 3CK to DSIR. It was also submitted that assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no approval in Form 3CL, hence, deduction claimed by assessee u/s. 35(2AB) cannot be allowed. 12. We have considered submissions of parties, perused orders of revenue authorities as well as other materials on record. We have also carefully applied our mind to the decisions relied upon by learned AR. At the outset, it must be put on record that there is no dispute to the fact that expenditure of ₹ 48,40,163 was incurred by assessee towards R & D activity as AO himself has allowed 100% of the said amount as deduction. The only reason for which AO has disallowed claim of weighted deduction of 150% of the expenditure is, there is no report from DSIR in Form 3CL. However, as can be seen from the facts on record as well as the observations made by the learned CIT(A), assessee's R & D facility has been approved by the competent authority from the A.Y. 2003-04 and such approval has been extended till 31.3.2015. It further transpires from record that assessee on 26.9.2012 submitted its application in Form No. 3CK for certification of R&D expenditure relating to FYs 2008-09, 2009-10 ad 2001-11 which is duly certified by the auditors. It is further evident that assessee along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs regarding approval being not in the prescribed form. Therefore, the assessee filed an application in the prescribed form No. 3CM on 28.4.2008 giving all relevant details including expenditure on scientific research for F.Y. 2002-03 to 2004-05. On this application, the approval has been granted w.e.f. 1.4.2007 to 31.3.2011. The assessee obtained the note sheets with reference to its application dt. 28.4.2008 under Right to Information Act from DSIR and noted that the application for earlier years including A.Y. under consideration had been considered in para 3. However, the approval was granted from 1.4.2007 to 31.3.2011. 6.1 In the backdrop of these facts, the issue before us is whether non-availability of the approval in the prescribed form for the relevant assessment year could disentitle the assessee of deduction u/s. 35(2AB) or not. In this regard, we may first refer to section 35 which deals with expenditure on scientific research. This section entitles the assessee to get deduction in respect of expenditure on scientific research laid out or expended in relation to business. 6.2 Section 35(2AB) deals with a situation where a company engaged in the business of [bio-techno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate from which the approval could be made effective. Therefore, once the assessee company is granted approval it will apply till it is revoked with reference to all the assessment years, which come within the ambit of that period. Therefore, mere mentioning of 1.4.2007 in the order dated 28.8.2008 was of no consequence and the approval granted in Form 3CM was also applicable for A.Y. 2005-06. In this regard, it is further noticeable that while granting of approval on 28.8.2008, the prescribed authority has, inter alia, observed in para 5 as under:- 'Ref. No. and Date of the application : Ref NBil dated 16.8.2007 The above Research & Development facility is further approved for the purpose of section 35(2AB) from 1.4.2007 to 31.3.2011 subject to the conditions underlined therein." The term 'further' makes it clear that the approval was not limited to 1.4.2007 to 31.3.2011 but was in addition to periods already approved. It is further noticeable that information obtained under RTI clearly showed that the assessee's applications were processed for earlier years also but no orders have been passed with reference to earlier assessment years. At the same time, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribed procedure, the exemption provisions have to be liberally construed and if in substance, the assessee has fulfilled the basic requirements then the exemption cannot be denied." 13. The aforesaid view expressed by the Mumbai Bench has been subsequently followed in many other decisions of the same Bench. Further, the Hon'ble Delhi High Court in case of CIT vs. Sandan Vikas (India) Ltd. (335 ITR 117) following the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Claris Life Sciences Ltd. (326 ITR 251) approved the view of the Tribunal that once the R & D facility is approved, the entire expenditure incurred for R & D facility has to be allowed towards weighted deduction u/s. 35(2AB) of the Act. The ratio laid down by the ITAT Mumbai Bench and the Hon'ble Delhi High Court in the decisions referred herein above squarely apply to the facts of the present case. Therefore, assessee's R & D facility having been approved by the prescribed authority and there being no dispute to the fact that assessee has incurred the expenditure towards R & D activities, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... segment. As a result of such allocation, the deduction claimed u/s. 80JJA was restricted to ₹ 3,20,81,495 resulting in addition of excess claimed to the tune of ₹ 2,35,14,706. Being aggrieved of the addition, assessee preferred appeal before CIT(A). However, CIT(A) also confirmed the addition. 16. The learned AR submitted before us that the R & D expenditure is entirely towards bio-fertilisers as no scientific research is required for organic manure. However, the learned AR submitted that the matter can be remitted to AO for verification. 17. Learned DR, on the other hand, referring to the information submitted in Form 3CK submitted that there is no bifurcation by the assessee for R & D facility. Therefore, AO has correctly allocated expenditure to both the segments. 18. We have considered submission of parties and perused material on record. As can be seen from observations of AO, he has allocated R & D expenditure to both organic and nonorganic manure segments on the sole consideration that the other expenses are allocated to both the segments. However, it is the claim of assessee that R & D expenditure is only confined to non-organic segment. Considering the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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