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TMI Blog2024 (5) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... d 28.07.2022 passed by the assessing officer under section 144C(13), having been passed beyond limitation provided in terms of Section 144C(13) read with section 153(3) of the Act, is illegal being barred by limitation, void ab initio and is liable to be quashed. 3. That the assessing officer erred on facts and in law in making transfer pricing adjustment of Rs. 21,92,40,676/- in relation to the specified domestic transactions undertaken by the appellant. 3.1 That the assessing officer erred on facts and in law in adding the transfer pricing adjustment made by the TPO to the income of the appellant not appreciating that the addition / disallowance ought to have been restricted to the deduction under section 80IC/80IE of the Act 3.2 That the assessing officer / TPO erred on facts and in law in not appreciating that the assessee being an entrepreneur is engaged in activities such as research and development, brand building and advertising and therefore cannot be selected as the tested party for the purpose of undertaking benchmarking analysis. 3.3 That the assessing officer/TPO erred on facts and in law in not appreciating that the associated enterprises being the simpler of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moved an application under Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 dated 08.02.2024 seeking admission of additional ground which read as under: ""Re: Disallowance of Deduction under section 35(2AB) amounting to Rs 12,01,42,780 5. That the assessing officer erred on facts and in law in allowing weighted deduction under section 35(2AB) of the Act at Rs. 100,90,68,000 as against Rs. 112,92,10,780 claimed by the appellant towards expenditure incurred on scientific research. 5.1 That the assessing officer failed to appreciate that the appellant having approved R&D Centres and having fulfilled the conditions of section 35(2AB) of the Act, is entitled to weighted deduction in respect of the entire gross expenditure incurred on scientific research. 5.2 That the assessing officer erred on facts and in law in allowing deduction under section 35(2AB) of the Act only to the extent of expenditure approved by Department of Scientific and Industrial Research (DSIR) in Form 3CL. 5.3 That the assessing officer erred on facts and in law in not appreciating that there is no provision under the Act empowering DSIR to approve the quantum of expenditure for the purposes of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Sikkim, which is eligible for deduction under Section 80-IE of the Act. 8.1 For the assessment year under consideration, the return filed by the assessee was selected for scrutiny under Section 143(3) of the Act. The case was referred to the Transfer Pricing Officer (TPO) in terms of S. 92BA r.w.s 80IA(8) & 80IA(10) of the Act for computing Arms' Length Price in respect of Specified Domestic Transactions (SDTs) towards purchase and sale of goods & services, entered into between the units eligible for deduction under Section 80IC/80IE of the Act and other units inter se and also other AEs of the assessee entity. The assessee as per its Transfer Pricing Study Report did not separately benchmark the SDTs entered into by the eligible units with the Associated Enterprises (AEs) of the assessee. The Assessee conducted entity level comparison of OP/OR of the assessee-company (combining all units) as a whole and compared it with the operating margins of other comparable companies. Considering the OP/OR/TNM (Transaction Net Margin) of the assessee-company as a whole which amounted to 19.11% as compared to OP/OR/TNM of comparable companies averaging 8.72%, the entire transactions, whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 80G of the Act on account of donations given 638,13,601 Addition w.r.t. difference in Duty Drawback 2,18,481 10. On receipt of the draft order, the assessee filed its objection to such variations with the Dispute Resolution Panel (DRP). 11. Pursuant to reference made by the Assessee, the DRP issued its direction dated 21.06.2022 wherein the view of the TPO that there existed an arrangement between the assessee and its Associated Enterprises (AEs) to shift profit to the eligible units from AEs in order to claim higher deductions was upheld on first principles. The transfer pricing adjustments of SDTs undertaken between eligible units and the AEs of the assessee were thus carried out based on OP/OR of comparable companies to reduce the claim of eligible deductions. The DRP, on facts, however modified and restricted the proposed adjustments in proportion to the value of Specified Domestic Transactions undertaken by the assessee. 12. In terms of the directions of the DRP, the TPO passed an order giving effect to the DRP direction dated 21.06.2022 vide order dated 21/07/2022 and recomputed the ALP adjustment as per the directions issued. The proposed adjustment was thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee-company with any specific most appropriate method but conducted entity level comparison of OP/OR of the assessee-company as a whole and compared it with the operating margins of other comparable companies. Considering the OP/OR/TNM Method of the assessee-company as a whole, the profit margin stands at 19.11% which is far more than the operating margin of comparable companies which stands at an average of 8.72% as computed by the Assessee. (iv) The operating profits of the respecting eligible units as stated are tabulated below. Units Turnover (Rs. Crores) Operating Profit (Rs. Crores) OP/OR % Paonta Unit-II 268.42 40.03 14.91 Paonta Unit-III 138.73 53.17 38.33 Sikkim Unit, Sikkim 77.55 26.06 33.31 (v) The TPO proceeded to make adjustments under s. 80IA(10) on the sole ground that eligible units have reported higher profits compared to Unit-I not eligible for deduction. The TPO in page 9, para 2 of its order observed that since the eligible units have earned higher profits, there existed an arrangement between the eligible units and AEs by implic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO thus has glaringly failed to discharge its onus while alleging existence of 'arrangement. 16.2 The Ld Counsel valiantly contested that even without the additional evidences, the action of the AO/TPO is outside the bounds of law on the ground of bald supposition of existence of arrangement contemplated under s. 80IA(10) without any corroboration with tangible material. The action of the AO/TPO is dictated by the sole consideration of relatively higher profits reported by the eligible units qua non eligible unit. Presumption of arrangement on such premise is contrary to stated legal position as enunciated in CIT vs. Schmetz India P. Ltd. 26 taxmann.com 336(Bom.); PCIT vs. Vedansh Jewels Pvt. Ltd. (2018) 97 taxmann.com 521 (Raj.); CIT vs. H P Global Soft Ltd. 342 ITR 263(Kar.); Honeywell Automation India Ltd. vs. DCIT in ITA no. 287/PUN/2015 order dated 25.02.2015 and many other decisions of the co-ordinate bench of tribunal. 16.3 The Ld. Counsel for the Assessee next submitted that while the onus of existence of arrangement lay upon the revenue, the assessee on its part seeks to blunt any thin suspicion of arrangement by assertively demonstrating arm's length nature of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing profits of eligible units at unit level with operating profits of alleged comparable companies by applying TNM Method. The entire basis of benchmarking conducted by the TPO by comparing profit of eligible unit (instead of entity level) with operating profits of alleged comparable companies is inherently fallacious without fulfilling the test of presence of 'arrangement' as judicially understood, which holds the key for invoking provisions of Section 92BA r.w. Section 80IA(10) of the Act. The ld. counsel thus harped that the additional evidences would merely demonstrate the basic tenet that the transaction between the eligible units, vis-a-vis its AEs are comparable and at Arms' Length and has not resulted in any clandestine profits to eligible units for which deduction has been claimed under Section 80IC/80IE of the Act. 19. The Ld. Counsel adverted to the DRP directions and submitted that the DRP has endorsed the action of the TPO/AO on existence of arrangement between the assessee and its associated enterprises to shift the profits to the eligible units from AEs without making any independent examination of the test of alleged 'arrangement' either. The DRP has acted in a mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing existence of 'arrangement'. Such point goes to the root of the matter. The whole addition is a complete non-starter in the absence of fulfillment of such paramount condition. The additional evidences, on the contrary, positively proves absence of 'arrangement'. Notwithstanding, the onus which lay upon the revenue was not discharged, assessee on its part proactively seeks to demonstrate otherwise. The additional evidences provide enunciation of bonafides in the action of Assessee and absence of any arrangement per se and non admission thereof may possibly provide misleading results would in turn, led to substantial miscarriage of justice. This is more so where the TPO has made bald allegation of arrangement giving rise to alleged more than normal profits to the eligible units based on a novice comparison of profit margins of eligible and non eligible units [page 9 of TPO order] without taking note of different FARs of such units. The ld. counsel next submitted that it is wrong to contend on the part of revenue that the assessee seeks to make out a new case by changing the stance on benchmarking from TNMM to CUP method with the aid of additional evidences. In this regard, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non eligible units / AEs are at arms length and at ordinary market price and therefore, no cause of action arises for invocation of 80IA(10) to allege the existence of any kind of 'arrangement' fetching more than ordinary profits to the assessee. 25.3 Para 2 page 9 of the order of TPO gathers significance for adjudication of controversy towards Transfer pricing adjustments under challenge as per Ground No. 3 of the Grounds of appeal. The operative para of the order of TPO would be relevant for this purpose. "In the present case, the point to be noted is that the Assessee is showing excessive profits to claim higher deduction under section 80-1C/80IE of the Act. When two related parties, one of whom is eligible for a profit linked deduction under section 80-IC/80IE of the Act transacts business between them which is not an arm's length, designed in a way to grant more than normal profits to the eligible party, the profits are actually being shifted from the non-eligible party to the eligible party, which then unjustifiably claims higher deduction under section 80-IC/80IE. From the above table it can be seen that OP/OR of Unit I (non eligible units) is 5.76% and OP/OR of eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom: Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to in section 92BA, the amount of profits from such transaction shall be determined having regard to arm's length price as defined in clause (ii) of section 92F." [Emphasis Added] 25.6 The nature of documentary evidence(s) sought to be admitted as additional evidences as per Rule 29 are broadly outlined as under: o Copy of purchase invoices showcasing a comparison of product-by-product purchases by eligible units from associated enterprises (AEs) and third parties during the year under consideration. o Copy of a purchase invoice(s) reflecting purchases by the deduction seeking units from the AEs and invoices of sales made by the AEs of same products to third parties. o Copy of the tax invoices for the sale transactions undertaken by the deduction seeking units with the associated enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The high profit must necessarily be the consequence of such arrangement. The onus to establish arrangement is upon the one who alleges so. The ld. counsel submits that on examination of additional evidences filed by Assessee as a proactive measure, it will be apparent that the findings of the TPO which resulted in the impugned additions are contrary to the elementary facts available in the matter. The additional evidences filed are in the form of comparative charts and Invoices showing value of purchases / sales made by the eligible units qua comparative transactions carried out by non AEs etc. The additional evidences attempts to uncover the myth propogated by the revenue and exposes the conceptual flaw in the approach adopted by it. The additional evidences would negate the artificial price distortion to claim higher deductions alleged by revenue without any basis. The assessee thus submits that the Tribunal is fully justified in admitting the additional evidences where it is of the opinion that substantial cause of justice cannot be carried out by ignoring the additional evidences. In the absence of such additional evidences, the Tribunal would be prevented from appreciating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods/services on the date of transfer expected of them in law. 28. The ld. counsel contends that it is judicially settled that the presence of comparably higher profit yield attributable to eligible units, would not ipso facto lead to a presumption that there inevitably exists an arrangement per se. For such proposition, a reference was made to the judgment delivered in the case of CIT vs. Schmetz India Pvt. Ltd., (2012) 26 taxmann.com 336 (Bom) wherein it was held that where the AO has not been able to prove any arrangement between parties which resulted in extraordinary profit, denial of deduction under Section 10A is not permissible. Similar view has been expressed in Pr.CIT vs. Vedansh Jewels Pvt. Ltd., (2018) 97 taxmann.com 521 (Raj) along with evidence of arrangement is paramount for such allegation. The ld. counsel also referred to the judgment in the case of CIT vs. H.P. Global Soft Ltd., 342 ITR 263 (Kar.) wherein it was inter alia observed by the Court that there should be material to indicate that assessee had indulged in an arrangement with other person so as to produce to the assessee more profits than what the assessee might have been ordinarily expected to arise fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade adjustment under Section 80IA(10) r.w.s 92BA by supposition of existence of 'arrangement' merely on the grounds of comparably higher profits reported by the eligible units vis-avis non eligible party. No other basis is discernible. The TPO/AO has compared the profits, unit wise instead of entity level comparison i.e. Single Unified business entity vis-à-vis uncontrolled comparables. The Assessee unequivocally claims non existence of any arrangement which, as observed earlier, is the bedrock for any plausible TP adjustment. The additional evidences appear to bring comparative purchase prices of various products transacted between AEs and non AE by an eligible unit to the fore. Similar is the case with sales carried out AEs vis a vis non AEs. Noticeably, the sales to AEs are insignificant in the context of total sales. The purchases from close connections are also moderate. In such matrix, to dispel the misconception of facts, if any, and to come to any definitive finding on existence of 'arrangement', the admission of additional evidence, in our view, would be paramount. 31. The TPO had no occasion to make any comparative data analysis of the transactions between eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t price of transactions carried with close connections. The additional evidences filed would throw light on the bonafides of such transactions. 34. The Hon'ble Supreme Court in the matter of Tek Ram vs. CIT (2014) 44 taxmann.com 367 (SC) has held that documents which are relevant to the case should be looked into by the appellate body. The Hon'ble Delhi High Court in the case of CIT vs. Text Hundred India Pvt. Ltd., 351 ITR 57 (Del) and CIT vs. Virgin Securities and Credits (P.) Ltd. (2012) 20 taxmann.com 681 (Del) relied upon on behalf of the assessee have held that the additional evidences which are crucial to the disposal of the appeal and had a direct bearing on the subject matter requires to be taken into account. 35. To conclude, the additional evidences placed under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 stands admitted. 36. On merits, the ld. counsel referred to the additional evidences and contended that firstly; the total sales to AEs in respect of Sikkim units and other eligible units at Paonta Sahib, Himachal Pradesh is miniscule as can be seen from the tabulations made in paragraph 15(ii) supra. Thus, sales to AEs do not have any material impact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34810 - 34810 Poanta Unit III Print Man Purchase of product 421418 - 421418 Poanta Unit III ANM Pharma Pvt. Ltd. Purchase of product 63956 - 63956 Poanta Unit III J.K. Print Packs Purchase of product 140185 - 140185 Poanta Unit III JPR Labs Private Limited Purchase of product 4011250 - 4011250 Sub Total Poanta Unit III Purchase of product 35898803 - 35898803 Sikkim A To Z Packers Purchase of product 1955058 - 1955058 Sikkim A.S. Packers Unit II Purchase of product- 1039068 - 1039068 Sikkim Copmed Pharmaceuticals Pvt. Ltd. Purchase of product 41990 - 41990 Sikkim J.K. Print Packs (Pharma Division) Purchase of product 683178 - 683178 Sikkim Medipack Innovations Pvt. Ltd. Purchase of product 39166844 - 39166844 Sikkim Pharma Force Lab- Unit I Purchase of product 357000 - 357000 Sub Total Sikkim 43243138 43243138 302256509 22577293 279679216 Mat Code Mat - Desc Inv. Vendor Inv-Vendor Name RPT UoM Qty Amt Avg Rate Min Rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Pvt. Ltd. Yes KG 250.00 122500.00 490 490 490 10001213 MCC (Avicel PH-102) Ph. Eur/USNF 0000100117 Signet Chemical Corp. Pvt. Lt d. (blank) KG 550.00 275657.75 501 490 585 10001287 Microcrystaline Celulose (Avicel PH101) IP 0000100046 Pharma Force Lab- Unit II Yes KG 79.40 40494.00 510 510 510 10001287 Microcrystaline Celulose (Avicel PH101) IP 0000100117 Signet Chemical Corp Pvt. Ltd. (blank) KG 1000.00 478000.47 478 478 478 11000062 Plain Alu Alu Foil 0.13 x 139Mm 0000102316 Medipack Innovations Pvt. Ltd. Yes KG 6348.11 2094874.65 330 330 330 11000062 Plain Alu Alu Foil 0.13 x 139Mm 0000102198 ICM Plastics Pvt. Ltd. (blank) KG 1296.66 434381.10 335 335 335 11000205 Plain Alu Alu Foil 0.13 x 170Mm 0000102316 Medipack Innovations Pvt. Ltd. Yes KG 6099.61 2012871.30 330 330 330 11000205 Plain Alu Alu Foil 0.13 x 170Mm 0000102198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0000102198 ICM Plastics Pvt. Ltd. (blank) KG 709.79 234230.70 330 330 330 20007791 LDPE Poly Bag 24"X36" 0000100666 A To Z Packers Yes KG 10332.63 1498231.35 145 145 145 20007791 LDPE Poly Bag 24"X36" 0000104206 Satyam Stationery & General Mart (blank) KG 25.00 3050.00 122 122 122 37. On being inquired by the bench, the ld. counsel strenously took us through the various items of purchase and corresponding purchases from unrelated entities or such purchases made by AEs etc. to demonstrate that the supply rate by the AEs to eligible units and the third party are broadly in the similar range and having no real impact on the so called extraordinary profits of the eligible unit on account of SDTs. The ld. counsel thus asserts that all the transactions of purchase and sale undertaken by the eligible units with AEs are at market price / ALP and therefore, in the absence of any arrangement giving rise to any abnormal profits to the eligible units, invocation of Section 80IA(10) r.w. Section 92BA of the Act is wholly unwarranted and consequently the adjustment made u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty to verify the correctness of the claim of the assessee that transactions of purchase undertaken by the eligible units with its AEs are at ordinary and comparable market price to justify ALP. The assessee shall also be entitled to benchmark transaction of the eligible unit by applying CUP method as most appropriate method to justify lack of any arrangement contemplated under Section 80IA(10) of the Act. To this limited extent, the matter is set aside to the file of the AO. The assessee shall be entitled to adduce such evidences as may be considered expedient to support its plea on comparability of purchase transactions carried out by eligible units with its AE viz. uncontrolled transactions. 41. As regards sale transactions by eligible units with its AEs, we do not consider it necessary to beset with further burden of proof on assessee towards aspects of ALP having regard to nominal percentage of sale transactions carried out with AEs owing to miniscule effect, if any, on the overall profitability when seen in the context. 42. The AO shall pass a reasoned order towards presence of 'arrangement' contemplated under Section 80IA(10), if any while determining the issue. The AO ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under Section 80G of the Act. 46.1 In this context, the ld. counsel submits that there can be no quarrel that as per Explanation-2 to Section 37 of the Act, the deduction towards expenditure incurred on CSR activities referred to in Section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of 'business or profession'. However, disallowance of such expenses/ outgo in view of stipulations made in section 37 of the Act does not put any fetters on the eligibility under other provisions of the Act viz. Section 80G of the Act. The claim is eligible for deduction under S. 80G unless statutorily prohibited. The ld. counsel contends that there being no bar in law to claim deduction under Section 80G of the Act notwithstanding its ineligibility under Section 37(1) of the Act, the denial of deduction under s. 80G is wholly misconceived and unjustified action. 46.2 The Ld. Counsel submits that section 80G of the Act allows a taxpayer to claim deductions in respect of contributions made to certain charitable Institutions and Funds etc. Further, sub-Section (2)(a) of Section 80G of the Act enumerates Funds to whom contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act, 2013 read with FAQs dated 25/08/2021 issued by the Ministry of Corporate Affairs GOI (MCA) provides for different modes of incurring CSR expenses. One of the specified modes is ' Contribution to Funds route', which inter alia allows the assessee to make contributions to various funds specified in Schedule VII of the Companies Act. The contributions to such funds, qualified to be in the nature CSR expenses under Companies Act, is not eligible for deduction as business expenditure in view of statutory exclusion carved out by Explanation-2 to Section 37(1) of the Income Tax Act, 1961. However, such exclusion extends only to the extent of computing business income under Chapter IV-D of the Act. As per the scheme of the Act, in the absence of any non-obstante clause, there does not appear to be any bar for the assessee to claim benefit under Section 80G, bracketed under Section VIA of the Act, if such contributions are eligible for deduction otherwise. The exclusions provided in 80G (2)(a)(iiihk) & (iiihl) qua certain specific contributions such as 'Swachh Bharat Kosh' and 'Clean Ganga Fund' rather exhibits the legislative intent loud and clear. Thus on a plain read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has raised additional ground before the Tribunal seeking to challenge the reduction of claim of deduction. 54. The ld. counsel for the assessee submits that as against the claim of weighted deduction of Rs. 1,12,92,10,780/-; such deduction claimed by the assessee was restricted to Rs. 100,90,68,000/- by the AO on the ground that DSIR has granted approval of the expenditure incurred quantified at Rs. 67,27,12,000/- as against the expenditure claimed to have been incurred by the assessee at Rs. 75,28,07,186/-. The AO thus worked out eligible weighted deduction at 150% of Rs. 67,27,12,000/- and allowed deduction of Rs. 100,90,68,000/- under s. 35(2AB) of the Act. In essence, the AO has scaled down the claim of weighted deduction under Section 35(2AB) to the extent of Rs. 12,01,42,780/-. [ unapproved portion of expenditure Rs. 8,00,95,000 + 50% weight thereon Rs. 4,00,47,500]. 55. The Ld. Counsel adverted to tabulation detailing claim of deduction under Section 35(2AB) of the Act for the relevant A.Y. 201819 under consideration reproduced hereunder: Srl. No. Details of Scientific Expenditure As per Assessee 'A' As per DSIR 'B' Difference'C' (A-B) 1. Revenue Expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f amount eligible by prescribed authority which approval is not necessary in view of judicial fiat. The ld. counsel reiterated that quantification of expenditure by DSIR is not the condition precedent for the purpose of Section 35(1)(i)/(iv) of the Act as long as the facility is approved by DSIR. It is not the case of the AO that such expenditure has not been laid out or expanded for the purposes of scientific research. The ld. counsel also pointed out on facts that the capital expenditure component does not include any expenditure incurred on acquisition of any land or building and therefore, whole of the capital expenditure is allowable under Section 35(1)(i) r.w. Section 35(1)(iv) of the Act. The deduction of the expenditure has been denied under Section 35(1)(i)/(iv) solely due to non approval thereof by DSIR. 56.1.2 Secondly, The main provision of weighted deduction under s. 35(2AB) do not postulate the requirement of quantification of expenditure and approval thereof by DSIR either. The underlying Rules imposing such conditions seek to widen the terms of main provisions and thus not enforceable in law. 57. We advert to first aspect of the issue. Section 35(1) provides for n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. vs. PCIT, (2021) 24 taxmann.com 73 (Bangalore-Trib.). 58.1 Riding on such decisions, the ld. counsel reiterated that once the R&D Centre/ facility stands approved by the prescribed authority, the assessee becomes entitled to benefit of weighted deduction on whole of actual expenses incurred notwithstanding lesser amount approved by prescribed authority. The judgements referred have interpreted the provisions of s. 35(2B) that quantification of expenditure eligible for weighted deduction by prescribed authority is not the requirement of law and an approval of facility thus would sufficiently entitle the Assessee to claim weighted deduction on whole of expenditure incurred towards scientific research. 58.2 The ld. counsel however thereafter fairly referred to substituted sub Rule (7A) of Rule 6 of the Income Tax Rules 1962 which lays down guidelines relating to procedure to be followed pre and post approval of R&D facility by DSIR. The substituted portion of the aforesaid Rule is applicable w.e.f. 01.07.2016 reads as under: "[Prescribed authority for expenditure on scientific research. [(7A) Approval of expenditure incurred on in-house research and development facility by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and circulars. 58.6 The ld. counsel also referred to the decision of the Co-ordinate Bench rendered in the case of USV Pvt. Ltd. vs. DCIT, ITA No.891/Mum/2021 order dated 20.06.2023 to submit that it pertains to AY 2018-19 and thus despite the amendment in Rule 6(7A) coming in force w.e.f. 01.07.2016, the Tribunal followed the order passed in the assessee's own case for the earlier Assessment years where the amended Rules had not come into force and held that quantification of expenditure by DSIR as provided in Rule 6(7A) is not binding on the AO. The ld. counsel thus sought appropriate relief in the matter. 59. The ld. DR for the Revenue, on the other hand, cited the decision of the Co-ordinate Bench in the case of Natural Remedies Pvt. Ltd. vs. ACIT, ITA No.704/Bang/2020 order dated 01.01.2021 to counter the eligibility claim of the assessee under Section 35(2AB) of the Act. 60. In rejoinder, the ld. counsel submitted that the aforesaid decision in the case of Natural Remedies (supra) relied upon by the Revenue actually helps the case of the assessee. The ld. counsel referred to paragraph 8.5 of the aforesaid order and submitted that the Co-ordinate Bench has observed there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of claiming deduction eligible under Section 35(2AB) of the Act. The judgments were thus rendered at the time when such conditions were not inbuilt by legislature in Rule 6(7A) of the Rules. The Hon'ble Courts were solely dependent on interpretative process to understand the purport of s. 35(2AB) due to prevailing ambiguity in law without the benefit of substituted Rule enacted later. 64. There can be no quarrel that, in the case of any conflict, 'Rules' being sub-ordinate legislation must yield to main Statute. However, there does not appear to be any conflict between the main statute and the underlying Rule. The main Statute is silent on quantification aspect of eligible deduction. The substituted Rule 6(7A), in our view, merely stipulates the quantification of expenditure by a prescribed authority and hence cannot be said to be repugnant to the provisions of Section 35(2AB) of the Act silent on such aspect. Rule 6(7A) is machinery in nature enacted to give full effect to main provision of S. 35(2AB) of the Act. The quantification of eligible expense for weighted deduction is procedural or a machinery exercise. Hence, there is no warrant to negate the effect of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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