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TMI Blog2021 (3) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... tted with the DSIR. 2.0 That on the facts and in the circumstances of the case, the ld. CIT(Appeals) was not justified in admitting the additional ground raised in appellant proceedings without considering the judicial pronouncements and provision of the Act. 3.0 That on the facts and in the circumstances of the case, the ld. CIT(Appeals) is unjustified in not allowing the claim of education cess of Rs. 24,43,508/- as an allowable business expenditure. 4.0 That on the facts and in the circumstances of the case, the ld. CIT(Appeals) is unjustified in not treating Focus Product Script Rs. 14,81,465/- incentive received under Foreign Trade Policy as capital receipt not chargeable to tax by considering the purpose test." Deduction u/s 35(2AB): 3. Straight to the issue, the assessee claimed weighted deduction u/s 35(2AB) amounting to Rs. 1.21 Cr. The Assessing Officer held that in the absence of Form 3CL, such deduction is not allowable. 4. The ld. CIT (A) supported the contention of the Assessing Officer reiterating that in the absence of Form 3CL, the claim of the assessee cannot be quantified and verified. While denying the deduction, the ld. CIT (A) held that since Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -17 the expenditure incurred on R&D centre is as under: 8. It was argued that the above expenditure for the assessment year 2014-15 and assessment year 2016-17 proves that the assessee is continuously engaged in the Research activity and the same has been renewed and approved by the DSIR as can be seen from the above approval letters. It was argued that the Form 3CL could not be submitted due to the fact that the CFO of the company has left the service and the document could not be traced. It was also submitted that Form 3CL has been submitted by the assessee on 26.12.2018 and 95% of the expenditure was allowed by the DGIT as allowed the expenses of 95%. The report submitted by the prescribed authority to the DGIT is as under: 9. The statement of expenditure claimed and allowed by the department in the Form 3CL is as under: 10. The ld. AR argued that having submitted all the details, the communication in Form 3CL was as per the rules is between the prescribed authority and the Income Tax Department. 11. The ld. AR submitted that it is the responsibility of the Assessing Officer to obtain the Form 3CL from the prescribed authority as the assessee is not privy to the communicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it was held that "having heard learned counsel for the parties and having pursued 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 3CL 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 Tribunal was perfectly correct and the Commissioner was not, in observing that in absence of such certification, claim of deduction under Section 35(2AB) was not available". 18. Similarly, the Tribunal in the case of Century Seeds Pvt. Ltd. Vs DCIT in ITA No. 942/Hyd./2017 dated 20.07.2018 held that AO has correctly allowed the deduction and there is no error in the order passed by AO u/s 143(3). Once a research facility is approved entire expenditure incurred on department of R&D has to be allowed weighted deduction as provided u/s 35(2AB). 19. Further, relying on the case of DCIT Vs Famy Care Ltd. on the same facts, the Tribunal in the case of Efftronics Sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 6. In the case of Jute Corporation of India Ltd. v. C.I.T. this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'cess' from Section 40(a)(ii) is that only taxes paid are to be disallowed in the assessment for the assessment years 196263 onwards. 27. The ld. AR also relied on the judgment of Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd. Vs JCIT in ITA No. 52/2018 dated 31.07.2018 wherein the same issue has been decided in favour of the assessee and particularly held that education cess is an allowable expenditure. 28. Further, he argued that in the case of ITC Vs ACIT in ITA No. 685/Kol/2014 dated 27.11.2018 wherein it was held that the education cess is an allowable expenditure. 29. The ld. AR has also relied in the case of Peerless General Finance & Investment Co. Ltd. Vs DCIT in ITA No.937 & 938/Kol/2018 dated 24.03.2019 wherein it was held that education cess is not tax and is an allowable expenditure. 30. The ld. DR argued that it is not the appropriate forum to raise the issue at this juncture. Since, there is no dispute between the assessee and the Assessing Authorities, a non-dispute cannot be adjudicated. He argued that the education cess is a part of the Income Tax and is a charge on the assessee. Hence, it cannot be treated as expense elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall include- (i)any tax on distributed profits under section 115-O or on distributed income under section 115R; (ii) any interest charged under this Act; (iii) surcharge, if any, as levied by the Central Acts from time to time; (iv) Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and (v) Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. 36. Thus, wherever the legislature wanted to include this term specifically in the statue it has done so under the Act. The term 'tax' has been defined in section 2(43) of the Act to include only Income-tax, Super Tax and Fringe Benefit Tax (FBT). Provision of the section 2(43) is as given below: "tax" in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of Fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied." 40. We also find that the proceeds from collection of "Education Cess" are not credited to Consolidated Fund but to a non-lapsable Fund for elementary education-"Prarambhik Shiksha Kosh". Since the proceeds from collection of Education Cess are kept separate for a specified purpose, applying the principles in the aforesaid decision of Apex Court in the case of M/s Dewan Chand Builders (supra), it can be said that the same is not in the nature of tax. Hence, it is allowable as deduction. 41. Further, Provisions of Section 37 are perused which are as under: "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT Vs ITC Infotech in ITA No. 220/Kol/2017 * Reckitt Benckiser India Pvt. Ltd. Vs DCIT (2020) 117 taxmann.com 519 (Kol.) * Crystal Crop. Protection Pvt. Ltd. Vs JCIT in ITA No. 1539/Del/2016 * Midland Credit Management India Vs ACIT in ITA No. 3892/Del/2017 * Voltas Ltd. Vs ACIT in ITA No. 6612/Mum/2018 * Sesa Goa Ltd. Vs JCIT (2020) 117 taxmann.com 96 (Bom.) * Chambal Fertilisers and Chemicals Vs JCIT in ITA No. 52 of 2018 (Raj. HC) 44. Hence, keeping in view the provisions of the Act pertaining to Section 40(a)(ii) and Section 115JB, Circular of the CBDT No. 91/58/66ITJ(19), the orders of Co-ordinate Benches of ITAT and judicial pronouncements of the Hon'ble High Court of Bombay and Hon'ble High Court of Rajasthan, we hereby hold that the assessee is eligible to claim the deduction of the 'Education Cess' as per the provisions of Section 37 of the Income Tax Act. Incentive under Foreign Trade Policy: 45. The assessee has received incentive under "Focus Product Scheme" (FPS) from Government of India for exports of goods. It was submitted that the objective of the FPS is to promote export of products which have high intensity/employment potential so as to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified that market linked focus products scripts (MLFPS) is meant for export of products of high export intensity employment potential would be incentivized at 2% of FOB value of exports in free Foreign Exchange under FPS when exported to the linked market countries. 50. Thus, there is no dispute that this incentive is an export incentive. The matter has been well considered by the order of the Co-ordinate of ITAT Chennai in the case of Eastman Exports Global Clothing Pvt. Ltd. in ITA No. 47/MDS./2016 dated 17.05.2016. The order dealt with the similar issue of market linked focus products scheme scripts has been deliberated and the same has been treated as a capital receipt in view of the decision of the Hon'ble Apex Court in the case of Ponni Sugars and Chemicals Ltd. 306 ITR 392. The relevant part of the order is as under: (Factual matrix) "2. ...... the assessee submitted that the assessee received Market Linked Focus Product Scheme scrips on export of knitted garments. The Market Linked Focus Product Scheme was given @ 2% of the FOB value for export to potential new markets and not for all the markets. According to the ld. Representative, this is an incentive given for explo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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