9911796707
TMI Blog2025 (1) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to assessment year 2012-13. 2. This appeal was earlier decided by the Tribunal vide order dated 18.05.2022. Subsequently, the Tribunal vide Miscellaneous Application No.230/PUN/2023 order dated 04.02.2023 recalled the order for the limited purpose of adjudicating the non-TP issues as per grounds of appeal No.2 and 3 which remained to be adjudicated. Hence, this appeal. 3. The grounds remained to be adjudicated are as under: II. Non TP Issues 2. Without prejudice to the above, the learned DRP erred in law and on facts in enhancing the disallowance of claim made u/s 35(2AB) of the R D expenditure for the reason that the appellant is not eligible to claim deduction u/s 35(2AB) for the amount which is in excess of the amount approved by DSIR. 3. Without prejudice to the above, after having denied weighted deduction claimed u/s 35 (2AB) in respect of the said expenditure on scientific research the learned DRP and the AO erred in law and on facts, in not allowing the deduction of the same under the provisions of Section 35(1) (iv) Income Tax Act, 1961 at least to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India. 7. However, upon verification of various details furnished by the assessee before the Panel, the DRP noted that the total R D expenditure claimed by the assessee comprises of revenue R D expenditure of Rs. 4.8 crores and capital R D expenditure of Rs. 5.1 crores. The assessee had claimed deduction u/s 35(2AB) of the Act @ 200% for the capital R D expenditure claim of Rs. 5.1 crores and the balance revenue R D expenditure of Rs. 4.8 crores has been claimed @ 100% and which has also separately been debited to the Profit and Loss Account. The DRP further noted that out of the revenue R D expenditure claimed by the assessee of Rs. 4.8 crores, DSIR has approved expenditure of only Rs. 4.74 crores. Therefore, the assessee has claimed an excess of Rs. 0.6 crores related to its claim of revenue R D expenditure which is not eligible for deduction. The DRP further observed that out of capital R D expenditure claimed of Rs. 5.1 crores, DSIR has approved the expenditure of only Rs. 21 lakhs. Therefore, the assessee has claimed an excess amount of Rs. 4.89 crores related to its claim of capital R D expenditure. Since the assessee has claimed deduction u/s 35(2AB) of the Act @ 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was restricted to Rs. 5 16 Crores, as against Rs. 15.006 Crores claimed by it and Rs. 11.626 Crores allowed by the AO. Accordingly, there was an enhancement of Rs 6.466 Crores (Rs 11.626 Crores Rs. 5.16 Crores). The alternative plea of the assessee to be allowed depreciation on the said amount which has been capitalized was accepted in principle. However, the Panel held that for the year under consideration, depreciation can be allowed only to the extent of the amount which has not been shown as capital WIP by the assessee. The corresponding WIP for the amount capitalized but shown as capital WIP will be allowed in the year when the said capital WIP is transferred as an intangible asset in the Balance Sheet. 10. The Assessing Officer in the final order passed on 19.01.2017 however, made disallowance of weighted deduction u/s 35(2AB) to the extent of Rs. 3,38,82,341/-. 11. Aggrieved with such order of the Assessing Officer / TPO / DRP, the assessee is in appeal before the Tribunal. 12. The Ld. Counsel for the assessee submitted that the Assessing Officer in the final assessment order has not enhanced the income. He submitted that till the amendment to Rules 6 and 7A from 1st July 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drop of same set of facts the Tribunal has held that the said capital expenditure on R D is eligible for 100% deduction u/s 35 (1) (iv) read with 35 (2) of the Act consequent to denial of claim u/s 35 (2AB). He submitted that in view of the above decisions, the issue stands covered in favour of the assessee. 16. The Ld. DR on the other hand heavily relied on the orders of the Assessing Officer / TPO / DRP. 17. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer / TPO / DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find an identical issue had come up before the Tribunal in assessee s own case for assessment year 2011-12. The Tribunal vide ITA No.624/PUN/2018, order dated 31.08.2021 has decided the issue in favour of the assessee by observing as under: 3. Succinctly, the facts of the case are that the assessee is engaged in manufacturing automobile accessories particularly Heat exchangers, i.e. Radiators, Evaporators, Condensers and Automotive air conditioning systems. The return was filed declaring total income of Rs. 3.56 crore and odd. One of the reported i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of a Table submitted by the assessee, which has been extracted in para 5.1 of his order, reading as under : Particulars Amount Outside India Remaining Claim u/s. 35(2AB) Considered in FA additions - - - - Capitalised Development Cost 4,48,35,186 3,39,60,518 1,08,74,668 - Tangible Investments-Additions 42,94,251 - 42,94,251 - Manpower Cost 6,91,701 - - - Sub Total (A) 4,98,21,138 3,39,60,518 1,58,60,621 9,96,42,277 Considered in CWIP Development Cost 5,47,24,293 5,47,24,293 - - Tangible Investments 6,800 - 6,800 - Salary-Design 1,18,45,866 - 1,18,45,866 - Travel Expenses 2,05,632 - 2,05,632 - Sub-Total (B) 6,67,82,591 5,47,24,293 1,20,58,298 13,35,65,182 Expenses Debited to P L A/c. (Sub-total C) 3,41,34,804 74,95,427 2,66,39,378 3,41,34,804 Grand Total 15,07,38,534 9,61,80,237 5,45,58,297 26,73,42,263 5. It can be seen from the above Table that the assessee categorized R D expenses under three broad heads: `Considered in FA Additions amounting to Rs. 4,98,21,138/- (Sub-total A); `Considered in CWIP amounting to Rs. 6,67,82,591/- (Sub-total B); and `Expenses Debited to P L A/c amounting to Rs. 3,41,34,804/- (Sub-total C). The three heads have further been bifurcated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h application is made in Form 3CK. The assessee in the instant case filed application on 15-07-2010 whose copy is available at page 26 to 66 of the paper book. Pursuant to the assessee s application, it was accorded recognition vide letter issued by DSIR on 07-12-2010. Going with the mandate of clause (i) of para 6 of the Guidelines as extracted above, the approval will have to be considered from Ist April of 2010, which is the previous year relevant to the assessment year under consideration. Clause (iii) providing for the approval to be considered from the date of recognition, applies only in case of companies not having DSIR recognized in-house R D. Since the assessee has a valid approval granted by the DSIR for R D Centre, it is covered within the four walls of clause (i) and there is no scope for applying clause (iii) and accordingly making it eligible for deduction only from the date of recognition. Accordingly, it is held that the approval to the assessee s in-house R D centre is to be considered from Ist April of 2010 under the above clause (i). The view point of the ld. CIT(A) considering the expenditure only from the date of the approval, namely, 07-12-2010, in our consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s. 35(2AB) was not there. The only requirement was to submit the report in relation to the approval of in-house R D facility. Any amount of expenditure incurred in respect of in-house R D facility qualified for the deduction - whether or not approved by the prescribed authority. Only the existence of approval and incurring of the expenditure were relevant considerations in the pre-amended era and not the amount quantified by the prescribed authority. The new stipulations came to be introduced w.e.f. 01-07-2016. As the assessment year under consideration is 2011-12 and the approval was granted by DSIR on 07-12-2010, the amended sub-clause (b) of Rule 6 (7A) coming into vogue even after the passing of the assessment order can have no applicability. We, therefore, hold that the ld. CIT(A) was not justified in restricting the amount of weighted deduction to the quantification done by the prescribed authority. The impugned order is reversed on this score. 11. The ld. CIT(A) also held that the capital expenditure in the nature of Intangibles incurred by the assessee could not qualify for the weighted deduction. For this purpose, he relied on the `Guidelines for approval in Form 3C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 622/1/0, 26 Milestone, Pune-Nasik Highway, Village Kuruli, Tal : Khed, District Pune . On a further query, the ld. AR submitted that the assessee s approved R D facility was engaged in designing and developing of Engine cooling systems and HVAC systems for vehicles. During the designing and development phase, engine coolant and HVAC systems are required to be put in Performance Evaluation Testing in variant weather conditions artificially created, for which sophisticated technology and set up is required that is not available in India. It was for such Performance Evaluation Test under variant weather conditions artificially created that the assessee availed services from its three AEs situated abroad. It was pointed out that the three AEs conducted the needful tests for which the assessee incurred total cost of Rs. 9.61 crore tabulated under Column Outside India , which was accepted by the TPO at ALP. 15. From the above discussion, it is abundantly clear that the total sum of Rs. 9.61 crore 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture of revenue nature, namely, Rs. 74,95,427/- was claimed by the assessee as revenue expenditure and accordingly allowed also. It is only the remaining capital expenditure of Rs. 8,86,84,811/- [Rs.3,39,60,518/- being sub-total (A) and Rs. 5,47,24,293/- being sub-total (B)] that qualifies for deduction u/s. 35(1)(iv). We order accordingly. 18. The ld. DR took strong 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). He submitted that no such ground has been taken by the assessee. It is apparent that the assessee raised a claim for weighted deduction on such an amount u/s. 35(2AB) of the Act. We have held hereinabove that 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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