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TMI Blog2025 (1) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... NDA, VP : ITA No.127/PUN/2024 filed by the Revenue and ITA No.333/PUN/2024 filed by the assessee are cross appeals and are directed against the order dated 28.11.2023 of the Ld. CIT(A), Pune - 13 relating to assessment year 2014-15. ITA No.96/PUN/2024 filed by the Revenue is directed against the order dated 29.11.2023 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2015-16. The assessee has filed the Cross Objection vide CO No.12/PUN/2024 against the appeal filed by the Revenue. ITA No.228/PUN/2024 filed by the Revenue is directed against the order dated 18.12.2023 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2017-18. Since common issues are involved in the appeals filed by Revenue, CO and appeal filed by the assessee, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order. 2. First we take up ITA No.127/PUN/2024 for assessment year 2014-15 as the lead case. Facts of the case, in brief, are that the assessee is engaged in the business of manufacturing of Automobile Ancillaries particularly Heat Exchangers i.e. Radiators, Evaporators, Condensers and Automotive Air Conditioning system. It filed its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.08.2021 is extracted as follows for reference: "QUOTE 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 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 Rs. 5,45,58,297/-. Resultantly, no weighted deduction is admissible in respect of expenditure incurred outside India amounting to Rs. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The Ld. DR's contention in this regard is sans merit and hence repelled. 19. To summarize, 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 the Act." UNQUOTE" It is seen from the above discussion in the honourable ITAT Pune's order that the facts are somewhat similar here. Respectfully following the above decision, it is accordingly held that the product development expenses of Rs. 4,15,53,737 spent outside India is not eligible for weighted deduction u/s 35(2AB). However it is allowed as a deduction u/s 35(1)(iv) as capital expenditure incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down by the Hon'ble Karnataka High Court in the case of CIT vs. Tejas Networks India (P.) Ltd., 52 taxmann.com 513 (Kar.), the Hon'ble Supreme Court in the cases referred supra held as under.- "Having regard to the facts of this case, the expenditure that is claimed is for upgrading the existing product. Therefore, the product so upgraded goes on changing as time progresses, keeping in mind the requirement and the competition in the market. The Tribunal rightly held that the expenditure is not in the nature of capital expenditure but is revenue expenditure. Therefore, the first substantial question of law is answered in favour of the assessee and against the revenue." 9. In the light of legal position discussed above, having regard to the facts of the case that the expenditure was incurred only up-gradation of existing products, we are of the considered opinion that the expenditure is not in the nature of capital but revenue expenditure. Accordingly, we direct the Assessing Officer to allow the expenditure as revenue nature. Accordingly, this ground of appeal no.8 filed by the assessee stands allowed UNQUOTE" The facts are somewhat similar this year's exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for development of new prototype product and assessee was also getting patent for the products developed. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs 1,04,77,500/- un product development as revenue expenses without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting patent for the products developed and hence the expenses incurred were for a capital asset and therefore, capital in nature. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs. 1,04,77,500/- on product development expenses as revenue expense by relying upon the decisions of Hon'ble ITAT in assessee's own case for AY 2011-12, without appreciating that the said decision has not beers accepted by the Department and an appeal has been filed before the Hon'ble Bombay High Court. 5. The appellant craves leave to add, amend, or alter any ground(s) of appeal at the time of hearing before the Hon'ble Tribunal. 9. So far as ground of appeal No.1 by the Revenue challenging the order of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be eligible for depreciation allowance at 25%. To sum up, he allowed deduction for a sum of Rs. 2,56,94,285/- (Rs.1,32,39,000/- as permitted by the Prescribed authority u/s. 35(2AB) plus depreciation @ 25% on the amount of capital expenditure of Rs. 4,98,21,138/-. This resulted into enhancement of income by Rs. 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 : 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house R&D centres having valid recognition by DSIR are considered from 1st April of the year in which application is made Form 3CK. (ii) Approval is considered co-terminus with DSIR recognition. (iii) For companies not having DSIR recognized in-house R&D Centre, approval is considered from the date of recognition." 7. The remaining 3 points given as - (vi) to (vi) under the Policy approval - apply only in case of firms. The assessee is a company which is governed by first three clauses of para 6 of the Policy for approval. Clause (i) clearly states that approval to the in-house R&D centres having valid recognition by DSIR are considered from Ist April of the year in which 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) pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een substituted by the Income-tax (10th Amendment) Rules, 2016 w.e.f. 01-07-2016. Prior to this substitution, the clause (b) read as under : "(b) The prescribed authority shall submit its report in relation to the approval of in-house Research and Development facility in Form No.3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval." 10. As per the pre-existing clause (b), the prescribed authority was supposed to submit only its report in relation to the approval of in-house R&D facility to the Director General (Income-tax Exemptions). The stipulation of quantifying the eligible expenditure by the competent authority for the purposes of weighted deduction 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... … of the expenditure so incurred: Provided …." 14. A cursory look at the above provision deciphers the conditions for the weighted deduction, inter alia, that an eligible company incurs any expenditure on scientific research (other than cost of land or building) on in-house research and development facility as approved by the prescribed authority. The key words in the provision are incurring of expenditure on in-house R&D facility as approved by the prescribed authority. Unless a particular R&D facility is approved by the prescribed authority, no weighted deduction can follow. On a pertinent query, the ld. AR admitted that the prescribed authority approved the in-house R&D unit of the assessee situated at "Gat No.626/1/2 and 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 create ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure of capital nature incurred on scientific research, other than the cost of land etc., qualifies for full one time deduction in the year of such incurring. Unlike sub-section (2AB), sub-section (1) does not require any specific approval from the prescribed authority for this purpose. Further, there is no stipulation that the expenditure should be incurred in India or outside or in-house R&D facility or otherwise, save and except as provided in other clauses of sub-section (1) of section 35. However, the amount of deduction u/s. 35(1) is equal to the amount of capital expenditure on scientific research. 17. Coming back to the amount of expenditure incurred by the assessee outside India amounting to Rs. 9,61,80,237/-, we find that the expenditure 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 cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's own case for the preceding assessment years, we do not find any infirmity in the order of the Ld. CIT(A) on this issue. Accordingly, the grounds raised by the Revenue are dismissed. 12. Now, coming to the appeal filed by the assessee is concerned, the Ld. Counsel for the assessee fairly conceded that the issue stands decided against the assessee by the decision of the Tribunal. We, therefore, dismiss the grounds raised by the assessee. ITA No.96/PUN/2024 (AY 2015-16) 13. The grounds raised by the Revenue are as under: 1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in holding that the expenditure incurred by the assessee of Rs. 4,09,65,000/- on product development was incurred only for up-gradation of existing products without appreciating that the said expenses were incurred by the assessee for development of new prototype product and assessee was also getting patent for the products developed. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing expenditure of Rs. 1,09,05,000/- on product development expenses as revenue expense without appreciating that the said expenses were incurred by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he extent of 100% at Rs. 1,32,51,191/- be upheld. 17. After hearing both the sides, we find the first ground of the CO has already been decided against the assessee which was fairly conceded by the Ld. AR for the assessee. In view of the above submission of the Ld. Counsel for the assessee, the first ground of the CO is dismissed. 18. So far as the second ground and the additional ground are concerned, the Ld. Counsel for the assessee at the outset submitted that this issue was raised before the Ld. CIT(A). However, the Ld. CIT(A) has given a concluding self contrary finding that the grounds raised by the assessee are dismissed. He submitted that the facts and figures are already on record and the Tribunal in assessee's own case for assessment year 2011-12 has already decided the issue in assessee's favour and in assessment year 2014-15 also the Ld. CIT(A) had allowed such claim of the assessee. He accordingly submitted that this alternate claim should be allowed. 19. After hearing both the sides, the additional ground of objection raised by the assessee is admitted for adjudication. 20. The Ld. Counsel for the assessee filed the following written submissions: Learned CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order passed by the learned CIT(A) National Faceless Appeal Centre the appellant viz. Mable Anand Thermal Systems Private Limited (previously named Mahle Behr India Private Ltd.) submits following grounds which are without prejudice to each other for your due and sympathetic consideration: On the facts & circumstances of the case and in law, 1. The learned CIT(A) erred in confirming disallowance of claim for weighted deduction amounting to Rs. 23,89,05,598/- in respect of expenditure incurred by the appellant in the relevant previous year on scientific research undertaken by the appellant in its duly recognised in house research and development (R & D) facility u/s 35(2AB) of the Income Tax Act, 1961 (the Act). 2. The learned CIT(A) failed to appreciate that the said claim of the appellant u/s 35 (2AB) was made after duly complying with and in conformity with the relevant provisions of the Act including the submission of requisite information regarding the R & D expenditure in the prescribed forms and non receipt of the report from Department of Scientific and Industrial Research (DSIR) quantifying in Form 3 CL the said expenditure as per Rule 6 was a technicality beyond th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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