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TMI Blog2021 (9) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue nature was claimed by the assessee as revenue expenditure and accordingly allowed also. It is only the remaining capital expenditure that qualifies for deduction u/s.35(1)(iv). Exception to the claim of the ld. AR for granting Deduction of the capital expenditure on scientific research and development incurred outside India u/s.35(1)(iv) -The amount does not qualify for the weighted deduction. The fact that the claim of the assessee cannot be entertained under one provision does not oust it from consideration under any other provision, if it is otherwise allowable under such latter provision. We have noticed that the amount of capital expenditure incurred on research and development outside India is eligible for deduction u/s.35(1)(iv). The same, therefore, has to be allowed as such. DR s contention in this regard is sans merit and hence repelled. The entire amount of R D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB); revenue R D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself; total of capital R D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-03-2011 to only ₹ 1,32,39,000/- as per Form No. 3CL dated 08- 07-2014. As the approval was granted w.e.f. 07-12-2010, the ld. CIT(A) held that the assessee was not eligible for weighted deduction on the expenditure incurred from 01-04-2010 to 06-12-2010. He further held that any expenditure capitalized by the assessee in the nature of `Intangibles was not eligible for the weighted deduction. The amount capitalized by the assessee was held to be eligible for depreciation allowance at 25%. To sum up, he allowed deduction for a sum of ₹ 2,56,94,285/- (₹ 1,32,39,000/- as permitted by the Prescribed authority u/s.35(2AB) plus depreciation @ 25% on the amount of capital expenditure of ₹ 4,98,21,138/-. This resulted into enhancement of income by ₹ 15,29,63,167/-, other than the confirmation of addition made by the AO. This has brought the assessee before the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. The AO proceeded with allowing the weighted deduction on the basis of a Table submitted by the assessee, which has been extracted in para 5.1 of his order, reading as under : Particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds have further been bifurcated into `Outside India and `Remaining inside India. Total of three expenses incurred outside India comes to ₹ 9,61,80,237. As the aggregate Sub-total C was claimed as revenue expenditure in Profit and Loss account, the assessee claimed deduction u/s 35(2AB) at two times of the aggregate Sub-totals (A) and (B) and one time of the aggregate Sub-total C for a total sum of ₹ 26,73,42,263/-. Against such a claim of the assessee, the AO disallowed a sum of ₹ 8.86 crore, being, the weighted part of sub-totals (A) and (B) of the expenditure incurred outside India, thereby allowing a single unweighted deduction of such costs incurred outside India. The ld. CIT(A) further disallowed even the one time of the amount of the revenue expenses allowed by the AO and also sub-totals (A) (B) except for granting depreciation allowance on the amount considered by the assessee in FA additions amounting to ₹ 4,98,21,138/-. Thus, the ld. CIT(A) allowed total weighted deduction of ₹ 2.57 crores by primarily relying on the amount approved by the Prescribed authority (DSIR) with effect from the date of approval, namely, 07-12-2010 and also a limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenditure only from the date of the approval, namely, 07-12-2010, in our considered opinion is not in accordance with the relevant rules. This portion of the impugned order is thus vacated. 8. The ld. CIT(A) restricted the claim of weighted deduction to the amount of ₹ 1,32,39,000/-, being, the amount permitted by the Prescribed authority. For this, he relied on Rule 6 (7A) as applicable from 01-07-2016. Clause (b) of Rule 6 (7A) provides as under: (b) The prescribed authority shall furnish electronically its report (i) In relation to the approval of in-house research and development facility in Part A of Form No.3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Act in Part B of Form No. 3CL; . 9. Sub-Clause (i) of clause (b) of Rule 6 (7A) provides that the prescribed authority shall furnish its report in relation to the approval of in-house R D facility quantifying the amount of expenditure incurred during the previous year, which is eligible for weighted deduction under sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee could not qualify for the weighted deduction. For this purpose, he relied on the `Guidelines for approval in Form 3CM of in-house R D Centres recognized by DSIR dated May 2014. Para 4 of such Guidelines contains `Conditions subject to which approval is given . Clause (xi) of para 4 runs as under: Capital expenditure on R D, eligible for weighted deduction will include only plant and equipment or any other tangible item. Capitalized expenditure of intangible nature will not be eligible for weighted deduction . 12. It can be seen from the above that the capital expenditure of intangible nature has been made ineligible for the weighted deduction. However, it is crucial to note that this ineligibility has been introduced by means of Guidelines issued in May 2014. The predecessor Guidelines of May 2010 did not contain any clause similar to clause (xi) of the 2014 Guidelines. Since the assessment year under consideration is 2011-12, the Guidelines issued in May, 2014 can have no application to the case. We, therefore, overturn the impugned order on this score. 13. Now we come to the expenditure incurred outside India for which the assessee raised a clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rore incurred by the assessee outside India has not been incurred on in-house R D facility as approved by the prescribed authority. What to talk of in-house R D facility of the assessee approved by the prescribed authority, here is a case in which the assessee incurred these costs for availing services from the R D facilities of its AEs. Since the R D facilities for which the assessee incurred costs outside India are neither of the assessee nor approved by the prescribed authority, there can be no question of granting any weighted deduction on the expenses incurred outside India. To sum up, it is held that the assessee is entitled to weighted deduction u/s.35(2AB) on total amount of expenditure incurred in India amounting to ₹ 5,45,58,297/-. Resultantly, no weighted deduction is admissible in respect of expenditure incurred outside India amounting to ₹ 9,61,80,237/-. 16. At this juncture, it is pertinent to note the mandate of section 35 with the caption `Expenditure on scientific research . Clause (iv) of section 35(1) provides for deduction of expenditure on scientific nature in respect of any expenditure of a capital nature on scientific research related to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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