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TMI Blog2018 (4) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... ing deduction of Rs. 57,64,322 u/s 35(1)(i) being revenue expenditure incurred for R & D activity and deduction of Rs. 4,65,900/- u/s 35(1)(iv) being capital expenditure incurred for R & D activity. 3. The learned CIT(A)-7, Pune erred in law and on facts in confirming the disallowance of Rs. 96,311 u/s 43B of the ITA, 1961 on account of delayed payment of leave encashment without appreciating the fact that leave encashment is a trade liability and not a statutory liability. 3. The first issue raised in the present appeal is against disallowance of weighted deduction under section 35(2AB) of the Act amounting to Rs. 93,45,333/-. 4. Briefly, in the facts of the case, the assessee for the year under consideration had furnished return of income declaring total income of Rs. 51,09,560/-. The assessee had undertaken two activities under Research & Development i.e. D & D (or electronics activity) and Bio-Diesel activity. The assessee in the return of income had claimed weighted deduction under section 35(2AB) of the Act only for D & D activity; whereas in the case of Bio-Diesel activity, deduction was claimed under section 35(1) of the Act and no weighted deduction was claimed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions provided in Rule 6(7A) and in section 35(2AB) of the Act were fulfilled, he had to pass an order in writing in form No.3CM. The CIT(A) further holds that the assessee in the present case does not have requisite certificate in form No.3CM from DSIR approving the expenses incurred by it on in-house Research & Development facility as per provisions of the Act. Hence, he upheld the order of Assessing Officer in denying weighted deduction under section 35(2AB) of the Act. Reliance was placed on different decisions was found to be misplaced since in all those cases the respective persons had received approval letter from the prescribed authority. The CIT(A) also observed that the Tribunal had held that once the facility was approved, the entire expenditure incurred had to be allowed and the Hon'ble High Court had upheld the said view in CIT Vs. Claris Lifesciences Ltd. (2010) 326 ITR 251 (Guj). However, since in the present case the approval was not granted by the DSIR, the CIT(A) held the assessee not eligible to claim the said deduction. 6. The assessee is in appeal against the order of CIT(A). 7. The learned Authorized Representative for the assessee referred to the chart, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has claimed deduction under section 35(2AB) of the Act @ 150%, vide ground of appeal No.2, an alternate plea has been raised to allow the deduction under section 35(2AB) of the Act at 100% and vide ground of appeal No.3, the issue to be decided is whether the payment of leave encashment was covered under section 43B of the Act or not. Our attention was drawn to the provisions of said section and it was pointed out that the assessee had submitted letter of renewal but no approval letter was received in form No.3CK. However, the same facility continues, wherein for the earlier period, there was recognition and even for the consequent period, there was recognition. So, the question which arises is whether the assessee is entitled to the aforesaid recognition in the intervening period. In this regard, reliance was placed on the decision of Pune Bench of Tribunal in list of case laws including the decision in the case of ACIT Vs. Nath Biogenes India Ltd. in ITA No.417/PN/2012, order dated 27.01.2014 and the Hon'ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (2008) 174 TAXMAN 113 (Guj). The learned Authorized Representative for the assessee fairly pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority. 11. Now, coming to sub-section (2AA) to section 35 of the Act, it talks about granting of approval by the prescribed authority but the approval to the expenditure being incurred is missing under the said section. Similar is the position in sub-section (2A). Further in sub-section (2AB), it is provided that facility has to be approved by the prescribed authority, then there shall be allowed deduction of expenditure incurred whether 100%, 150% or 200% as prescribed from time to time. Clause (2) to section 35(AB) of the Act provides that no deduction shall be allowed in respect of expenditure mentioned in clause (1) under any provisions of the Act. Clause (3) further lays down that no company shall be entitled for deduction under clause (1) unless it enters into agreement with prescribed authority for co-operation in such R & D facility. The Finance Act, 2015 w.e.f. 01.04.2016 has substituted and provided that facility has to fulfill such condition with regard to maintenance of accounts and audit thereof and for audit of accounts maintained for that facility. 12. Under Rule 6 of Income Tax Rules, 1962 (in short 'the Rules), the prescribed authority for expenditure on scie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and 7a are w.e.f. 01.07.2016 i.e. under the amended rules, the prescribed authority as in part A give approval of the facility and in part B quantify the expenditure eligible for deduction under section 35(2AB) of the Act. 14. The issue which is raised before us relates to pre-amended provisions and question is where facility has been approved by prescribed authority, but no form No.3CM issued, can the assessee be denied deduction under section 35(2AB) of the Act. 15. The Hon'ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (supra) have held that weighted deduction is to be allowed under section 35(2AB) of the Act after the establishment of facility. However, section does not mention any cutoff date or particular date for eligibility to claim deduction. The Hon'ble High Court held as under:- "8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of: (i) development of facility; (ii) incurring of expenditure by the assessee for development of such facility; (iii) approval of the facility by the prescribed authority, which is DSIR; and (iv) allowance of weighted deduction on the expenditure s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was development of facility, then the entire expenditure incurred on development of facility, if facility is approved, had to be allowed for the purpose of weighted deduction. 17. The Hon'ble High Court of Delhi in CIT Vs. Sandan Vikas (India) Ltd. (supra) on similar issue of weighted deduction under section 35(2AB) of the Act held that the condition precedent was the certificate from DSIR, but the date of certificate was not important, where the objective was to encourage research and development by the business enterprises in India. In the facts before the Hon'ble High Court of Delhi, the assessee had approached DSIR vide application dated 10.01.2015. The DSIR vide letter dated 23.02.2006 granted recognition to in-house research and development facility of assessee. Further, vide letter dated 18.09.2006, DSIR granted approval for the expenses incurred by the company on in-house research and development facility in the prescribed form No.3CM. The Assessing Officer in that case refused to accord the benefit of aforesaid provision on the ground that recognition and approval was given by DSIR in the next assessment year. The Tribunal allowed the claim of assessee relying on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed authority but did not have the approval in the prescribed form as the same was never brought to his notice. When the assessment proceedings for assessment year 2005-06 were taken up, an objection was raised and the assessee filed application giving particulars of approval and also expenditure for the financial years 2002-03 to 2004-05. It was pointed out that the prescribed authority vide order dated 28.08.2008 granted approval in form No.3CM w.e.f. 01.04.2007 to 31.03.2011. The plea of assessee in that case was that since no time limit was prescribed for complying with the prescribed procedure for grant of approval, hence the approval which was subsequently granted in the prescribed form should not result in denial of deduction to the assessee for earlier period. The Tribunal after considering provisions of the Act and rules therein held as under:- "6.2.... A close reading of the section r.w. Rule 6 would reveal that nowhere any time has been prescribed within which the application is required to be filed by the assessee company. Further, nowhere, any condition has been prescribed regarding cut off date from which the approval could be made effective. Therefore, once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Vs. Claris Lifesciences Ltd. (supra) and held that for availing the benefit under section 35(2AB) of the Act, what was relevant was not the date of recognition or cutoff date mentioned in the certificate of DSIR or even the date of approval, but the existence of recognition. It was further held that if R&D centre is not recognized, it is not entitled to deduction; but if it is recognized, it is entitled to the benefit. It was further observed that the Hon'ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (supra) had rightly observed that the date of approval of R&D centre, not being part of provision, extending benefit only from the date of recognition "amounts to reading more in the law which is not expressly provided". Distinguishing the ratio laid down by the Hon'ble High Court of Delhi itself in Apollo Tyres Ltd. Vs. Union of India (supra), it was observed as under:- "42. Insofar as the Apollo Tyres (supra) is concerned, in the said case, the Petitioner had omitted to apply for approval under Form 3CK, though recognition was granted to its R&D Centre. The said Form 3CK consists of the Agreement to be entered into with the DSIR, in Part B. The omission by the Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court of Karnataka in view of section 43(4) of the Act observed that the said sub-section defines as to what activities would constitute scientific research and it was held that the said issue requires examination by the prescribed authority itself. The Hon'ble High Court categorically held that the Assessing Officer could not sit in judgment over the report submitted by the prescribed authority in form No.3CL. So, the issue before the Hon'ble High Court of Karnataka was whether any expenditure incurred in the acquisition of rights in or arising out of scientific research as indicated in clause (2) of sub-section (4) of section 43 of the Act was allowable or not, which is not the issue before us. The issue before us is in respect of provisions of section 35(2AB) of the Act. 26. The Hon'ble High Court of Gujarat in CIT Vs. Claris Lifesciences Ltd. (supra), the Hon'ble High Court of Delhi in CIT Vs. Sandan Vikas (India) Ltd. (supra) and the Hon'ble High Court of Madras in CIT Vs. Wheels India Ltd. (supra) have clearly held that for accord of deduction under section 35(2AB) of the Act, first step is the recognition of facility by the prescribed authority and the entering of agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee duly filed the application for renewal of recognition on 06.02.2009 and the facility was recognized by the prescribed authority vide letter dated 16.06.2009 upto 31.03.2012. In this regard, certificate of registration was granted by DSIR dated 24.06.2009 for recognition of R&D facility upto 31.03.2012. 29. Further, next reminder was sent by DSIR to renew recognition of R&D unit beyond 31.03.2012 vide letter dated 02.01.2012. The assessee did file online application for renewal of R&D facility before DSIR on 06.05.2012. The renewal of recognition was granted by DSIR upto 31.03.2015 vide letter dated 25.06.2012. Form No.3CM was granted on 05.11.2013 by DSIR for the period from 01.04.2012 to 31.03.2015. The perusal of above said documents reflect that the assessee was for the first time given recognition by DSIR on 01.06.2006. The said recognition was granted upto 31.03.2009. The assessee and DSIR entered into an agreement recognizing in-house R&D facility of the assessee, which entitles the facility to be eligible for grant of deduction under section 35(2AB) of the Act. The assessee also filed form No.3CK along with copy of agreement and received form No.3CM granted by DSIR for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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