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TMI Blog2023 (8) TMI 1468X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the appellant's case, the Ld. CIT (A) has erred in confirming the disallowance u/s. 35 (2AB) to the extent of Rs.27,93,980/-. 2. In law and in the facts and circumstances of the Appellant's case, the Ld. CIT ought to have appreciated that the total R&D expenditure incurred by the appellant was of Rs.42,42,490/- and accordingly, the deduction available to the appellant u/s.35 (2AB) was of Rs.84,84,980/- . He has failed to appreciate that as held by the different decisions of ITAT, Ahmedabad and decision of Gujarat High Court cited before him, once the R&D facility is approved by DSIR, the entire expenditure incurred on such facility is eligible for deduction u/s. 35 (2AB). The department has not disputed the incurring of expenditure as shown by the appellant on R&D facility and therefore, there is no question of restricting the amount eligible for deduction. 3. The Hon'ble ITAT may please direct for allowing the entire deduction as claimed by the appellant. 4. The appellant craves leave to add to amend or to raise any further grounds of appeal as case may arise 3. The ld.counsel for the assessee submitted that the facts and the basis for disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch and development as mentioned in Form No.3CL was of no relevance, and Form No.3CL was to be read only to the extent of DSIR approving the fact that the assesseehad facility for carrying on in-house research and development. In support of his contention, he placed before us the following decisions: i) ACIT Vs. M/s.Crompton Greaves Ltd., 5295 & 5390/Mum/2017 dated 27.9.2019; ii) Crest Composites & Plastics P. Ltd. Vs. DCIT, 28/Ahd/2017 dated 31.8.2021; iii) Sun Pharmaceutical Industries Vs. Pr.CIT, 1417/Ahd/2016 dated 17.5.2019; 6. The ld.DR, on the other hand, pointed out that the interpretation by the various decisions of the ITAT that the purpose of Form No.3CL prior to 1.4.2016 was only to certify that the assessee was approved as having an in-house research and development facility,was misplaced, because, certification of approval of facility was required tobe given by DSIR in a separate Form i.e. Form No.3CM; that there cannot be requirement of furnishing two forms by the prescribed authority, i.e. DSIR, for the same purpose i.e. both Form No.3CM and 3CL be issued for approving inhouse research and development facility; that Form No.3CL has to be read along with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search (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 [two] times of the expenditure so incurred. ..... ..... ...... .... .... .... (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 [fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed]. (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." 10. As is evident from a bare perusal of the above the assessee is entitled to weighted deduction on capital and revenue expenditure on in-house research and development facility subject to the condition that : * its in-house research and development facility is approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; of its granting approval; (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall be furnished to the Secretary, Department of Scientific and Industry Research by 31st day of October of each succeeding year. Explanation: For the purposes of this sub-rule the expression "audited" means the audit of accounts by an accountant, as defined in : Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961; (d) Assets acquired in respect of development of scientific research and development facility shall not be disposed of without the approval of;: Secretary, Department of Scientific and Industrial Research.] 12. As is evident from Rule 6(7A), the prescribed authority is required to submit its report in relation to the approval granted in Form 3CL. And this report is to be submitted within 60 days of granting approval. Form 3CM on the other hand is the form prescribing the format in which order of DSIR granting approval. Clearly therefore the scope of Form 3CL and Form 3CM are different and not overlapping as contended by the Revenue before us. Further Rule 6(7A) requires assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded sub-section (3) to section 35(2AB) reads as under: ..... ..... ...... .... .... .... (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 fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. 15. As a consequence to this amendment, Rule 6(7A) was also amended specifically requiring the prescribed authority to quantify expenditure incurred on in-house research and development eligible for weighted deduction in terms of section 35(2AB) of the Act in Form 3CL, the report of which is required to be submitted within 120 days of receipt of audit report of the accounts relating to the facility. The amended Rule 6(7A) reads as under: "6[(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely :- (a) The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent a change to the effect that on entering into agreement with DSIR in Form no.3CK, the assessee was required to submit information of its expenditure incurred inhouse research and development facility on land, building, capital and revenue expenditure, every year to the prescribed authority in Annexure-2 of Form no.3CK and prescribed authority was required to quantify the expenditure eligible for weighted deduction in Part-B of the Form No.3CL. 18. What derives from the above, therefore, is that consequent to amendment to section35(2AB) by the Finance Act, 2015 w.e.f. 1.4.2016, requirement of law was that the prescribed authority had to quantify the quantum of eligible expenditure incurred on in-house research and development facility by the assessee. But prior to that there was no such requirement inlaw and the prescribed authority was the only required to grant approval to the in-house research & development activity. 19. The impugned assessment year before are Asst.Year 2014-15 & 2015-16. Since these assessments are prior to 1.4.2016, the amendment to section 35(2AB)) are not applicable to the same and in terms of un-amended provisions of section 35(2AB) of the Act, since we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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