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TMI Blog2021 (1) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... note that for claiming deduction u/s 35(2AB) the assessee should be engaged in manufacture of certain articles or things as stipulated in that provision. It is not in dispute that the assessee is engaged in the business to which Section 35(2AB). It is not in dispute that the assessee in this case received recognition of its R D unit at Sipaigachi vide letter dated 26.03.2013 vide page 73 of PB. In the aforesaid facts and circumstances 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. Neither the prescribed authority (Refer page 82 83 of PB) nor the AO has applied the mind as to the expenditure, actually incurred for the R D facility at Sipaigachi. Merely because the prescribed authority (DSIR) failed to send intimation in Form 3CL in respect of expenditure incurred by R D unit at Sipaigachi would not be reason enough to deprive the assessee s claim of deduction u/s 35(2AB) - Since the verification has not been done by the prescribed authority (DSIR) or the AO, we set aside the impugned order of the Ld. CIT(A) and remand this issue for the limited purpose to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion should not be allowed as claim u/s 35(2AB) of the Act. The AO acknowledges that pursuant to the said notice, the assessee filed reply dated 24.02.2016 along with the copy of Form No. 3CL in respect of this assessment year (AY 2013-14) issued by Secretary DSIR. However, according to AO, in the Form 3CL the breakup of total cost of in-house research was given as under: a) Capital Expenditure (other than land building) : ₹ 1.40 Lakh b) Recurring Expenditure : ₹ 21.50 Lakh ₹ 22.90 Lakh 4. The AO notes that even though the DSIR Form 3CL approves only ₹ 22.90 Lakhs, the assessee along with the return had filed the computation of income wherein it has availed deduction u/s 35(2AB) the following: (i) Recurring Expenditure to the tune of ₹ 67,96,974/- and (ii) Capital Expenditure of ₹ 1,05,79,961/-. Thus, according to AO, the deduction availed by the assessee u/s 35(2AB) of the Act is therefore, not in conformity with the Report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding as under: 3.5. The submission filed by the assessee has been duly considered. The Department of Scientific Industrial Research has granted Registration to the Sipaigachi unit only on 26.03.2013. This fact has been accepted by the assessee in its submission also. The assessee can claim deduction u/s 35(2AB) only on those expenses which are approved by the Department of Scientific Industrial Research and the said expenses are duly reflected in Form 3CL issued by Secretary, DSIR, which is a statutory requirement. The DSIR in its Report in Form 3CL has not certified / approved the expenses claimed to be incurred by the assessee in respect of its R D unit at Sipaigachi. The ratio of the judgments relied upon by the assessee is not applicable in the case of the assessee. In this case, not only the registration was granted to R D unit of the assessee company at Sipaigachi on 26.03.2013, but also the Secretary, DSIR in its report in Form 3CL has not approved / certified recurring as well capital expenditure incurred at Sipaigachi R D unit in F.Y. 2012-13. 3.6 Hence as discussed above, the submission of the assessee is found unacceptable. No weighted deduction u/s 35(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred: . (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and for audit of the accounts maintained for that facility. (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such form and within such time as may be prescribed. .. Rule 6 of the Income Tax Rules, 1962 (Rules) prescribes procedure to be followed by the prescribed Authority for grant of approval under Section 35(2AB) of the Act. The relevant part of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. 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 on 26.03.2013 in respect of R D unit at Sipaigachi (refer page 73 of paper book) . As per the procedure for claiming deduction under section 35(2AB) of the Act as per Department of Scientific and Industrial Research (DSIR) subsequent to the approval by the DSIR, the assessee should submit audited accounts for each year for each approved scientific research centre by 31st October of the succeeding year along with certain information. Thereafter the DSIR will issue a form called Form 3CL. The claim of the assessee for weighted deduction at 200% of the expenditure incurred on scientific research was refused by the assessing officer for the only reason that the expenditure incurred at assessee s R D unit at Sipaigachi did not get approval in Form 3CL from DSIR to the claim of assessee to the tune of ₹ 2,55,25,697/-. 11. It has to be taken note that Rule 6(7A)(b) of the Income Tax Rules, 1962 (hereinafter referred to as the Rules ) specifying the prescribed authority and conditions for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of s. itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R D faciiity has to be allowed for weighted deduction as provided by section 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up research and development facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnition by Secretary DSIR only on 26.03.2013 and in the Form 3CL issued for the year under consideration, the DSIR has not approved the expenses claimed to have been incurred by the assessee in respect of its R D Unit at Sipaigachi therefore, an amount of ₹ 2,55,25,677/- was disallowed. On appeal, the Ld. CIT(A) has allowed the claim of the assessee by relying on the decision of Hon ble Gujrat High Court in the case of Banco Products (India) Ltd. (supra). And we note that similar issue came up before the Hon ble Gujrat High Court in the case of CIT vs. Sun Pharmaceutical Industries Ltd. reported in (2017) 250 TAXMAN 0270 wherein the Hon ble high held as under: 5. Having heard learned counsel for the parties and having perused the orders on record, we are broadly in agreement with the view of the Tribunal. Undisputedly, the research and development facility set up by the assessee was approved by the prescribed authority and necessary approval was granted in the prescribed format. The communication in Form 3CM was thereafter, between the prescribed authority and the department. If the same was not so, surely, the assessee cannot be made to suffer. To this extent, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has significance. We note that for claiming deduction u/s 35(2AB) of the Act, the assessee should be engaged in manufacture of certain articles or things as stipulated in that provision. It is not in dispute that the assessee is engaged in the business to which Section 35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s 35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority i.e, Secretary, Department of Scientific Industrial Research, Govt. of India (DSIR ). It is not in dispute that the assessee in this case received recognition of its R D unit at Sipaigachi vide letter dated 26.03.2013 vide page 73 of PB. In the aforesaid facts and circumstances 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. However, we note that neither the prescribed authority (Refer page 82 83 of PB) nor the AO has applied the mind as to the expenditure, actually incurred for the R D facility at Sipaigachi. Merely because the prescribed authority (DSIR) failed to send intimation in Form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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