Income Tax Appellate Tribunal - Bangalore
M/S Mahindra Electric Mobility Ltd , ... vs Assistant Commissioner Of Income Tax ... on 14 September, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
ITA No.641/Bang/2017
Assessment year : 2012-13
M/s. Mahindra Electric Mobility Ltd., Vs. The Assistant Commissioner of
(formerly known as Mahindra Reva Electric Income Tax,
Vehicles Ltd.), Circle 4(1)(2),
(formerly known as Mahindra Reva Electric Bangalore.
Vehicles Pvt. Ltd.),
Corp. Off. 8th Floor, Gold Hill Square Park,
# 690, Hosur Road, Bommanahalli,
Bengaluru - 560 068.
PAN: AABCR 2858R
APPELLANT RESPONDENT
Appellant by : Shri H.P. Mahajani, CA
Respondent by : Ms. Meera Malhotra, CIT(DR-II), ITAT, Bengaluru.
Date of hearing : 17.07.2018
Date of Pronouncement : 14.09.2018
ORDER
Per N.V. Vasudevan, Judicial Member
This is an appeal by the Assessee against the order dated 26.09.2016 of the CIT(Appeals)04, Bangalore for the assessment year 2012-13.
2. There is a delay of 90 days in filing the appeal by the Assessee. The delay in filing the appeal has been explained as due to the following circumstances. The Assessee was represented before the Assessing ITA No. 641/Bang/2017 Page 2 of 17 Officer by Firm of Chartered Accountants M/S. Walker, Chandiok & Co. LLP from Bengaluru. When the impugned order was passed, Assessee's tax matters were internally handled by Mr. A Narayana Swamy who is in the employment of the Assessee since 1st October 2003. During discussion with the tax consultants a view emerged that since the claim under section 35(2AB) of the Act was disallowed for non-receipt of order of DSIR in Form 3CL and since that in turn was on account of non-submission of audited accounts of the aforesaid R&D Center to DSIR, there would be no hope of any relief before Appellate Authorities and hence there was no point in contesting the issue any further. Thus, appeal was not preferred before the Hon'ble Tribunal against the order passed by the Commissioner of Income Tax (Appeals). Thereafter, on 22nd February 2017, the Assessee was served with a notice u/s 276C(2) of the Act in respect of AY 2012-13. At this point the Assessee contacted the Tax Cell of its parent company Mahindra & Mahindra Limited (M & M) in Mumbai for guidance. In turn the matter was also referred to M/s. B. K. Khare and Company, Chartered Accountants, Mumbai, (BKK) who have been the tax consultants of Mahindra & Mahindra Limited (M&M) for the last several decades. All relevant orders and other facts were made available to BKK and several rounds of emails and telephonic conferences took place between the Appellant, M&M and BKK. After a great deal of deliberation, it was decided that there was great deal of merit in the claim of the Assessee for deduction u/s 35(2AB) for the reason that the R & D Center was duly approved by DSIR and, more importantly, the Assessee's claim under section 35(2AB) was approved by DSIR for all subsequent years and had also been allowed by the Assessing Officer. It was therefore, felt that the rejection of the claim was on mere technical grounds and not on merits of the matter. The Assessee was advised by BKK that the Income tax Act did not lay down any time period for submitting the audited accounts of the approved R & D ITA No. 641/Bang/2017 Page 3 of 17 Center; it was only the Guidelines issued by DSIR which laid down the timeline. There was also no provision for furnishing of approval in Form 3CL by DSIR to the Assessing Officer. The Assessee was advised that these Guidelines thus travelled beyond the Act and the Rules framed thereunder. The Assessee was also informed by BKK that in the case of M&M, Hon'ble Tribunal of Mumbai had allowed the claim even in the absence of certificate in Form 3CL. BKK also advised the Assessee to get the accounts of the R & D Center for the concerned year audited by the Statutory Auditors of the Assessee and to furnish them to DSIR with a prayer for condonation of the delay. Accordingly the Assessee decided to file appeal on advise of BKK. It is claimed that the Assessee was put under a bonafide belief that rejection of the claim u/s 35(2AB) did not involve any debatable issue requiring adjudication at higher levels. Therefore, it did not file an appeal against the impugned appellate order. Now, on the basis of emerged view, the Assessee has been made aware that the rejection of its claim was only on technical grounds and there was substantial merit in its claim, which stood accepted by the Department in later years. The contentions as stated above in the application for condonation of delay are supported by affidavit of Mr.Mahesh Babu, Chief Executive Officer of the Assessee.
3. In the above circumstances, the Assessee has prayed that the non- filing of the appeal in the first instance and the resultant delay arose out of bonafide reasons. The delay was not on account of any gross negligence or deliberate disregard of its rights or gross inaction on the part of the Assessee. There was sufficient cause for the delay as stated above. It has also been submitted that non-admission of Assessee's claim would result in an otherwise meritorious matter being thrown out on a mere technicality. No prejudice would be caused to the Revenue by allowing the appeal to be ITA No. 641/Bang/2017 Page 4 of 17 admitted and proceeded with on merits more so when the claim has been allowed by the Department in subsequent years.
4. The learned counsel for the Assessee submitted that if this application for condonation of delay in filing the appeal is not allowed, the appellant would be put to great hardship and irreparable injury and on the other hand no hardship or injury would be caused to the Respondent if this application of Condonation of delay is allowed. Reliance was placed on the decision of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471 and also in the case of Concord of India Insurance Co. Ltd., Vs Smt. Nirmala Devi and Others 118 ITR 507. Further reliance was also placed on another decision of the Hon'ble Apex Court in the case of Radha Krishna Rai Vs. Allahabad Bank & Others [2000] 9 Supreme Court Cases 733 and Commissioner of Income-tax Vs. West Bengal Infrastructure Development Finance Corporation limited (2011) 334 ITR 269 (SC). Reliance was also placed on the unreported decision of the Hon'ble Jurisdictional Karnataka High Court in the case of CIT & Another Vs. ISRO Satellite Center, in ITA No. 532 of 2008 and other batch of appeal order dated 28/10/2011 has condoned the delay of 5 years in filing the appeal before the CIT[A]. Reliance was also placed on the decision of the Hon'ble Jurisdictional Tribunal in the case of Smt. Shakuntala Hegde, Legal Heir of Mr. Ramakrishna Hegde Vs. ACIT, in ITA No. 2785/Bang/2004 order dated 25/04/2006 wherein the Hon'ble Jurisdictional Tribunal has condoned the delay of 1,331 days i.e., 3 Years, 8 Months and 22 days in filing the appeal by the assessee."
5. The learned DR submitted that since the addition was an agreed addition, the plea of wrong advice by professional cannot be pleaded by the Assessee.
ITA No. 641/Bang/2017 Page 5 of 176. We have given a careful consideration to the rival submissions. At the outset, we observe that the Hon'ble Supreme Court, in the case of Mst. Katiji (supra), has explained the principles that need to be kept in mind while considering an application for condonation of delay. The Hon'ble Apex Court has emphasized that substantial justice should prevail over technical considerations. The Court has also explained that a litigant does not stand to benefit by lodging the appeal late. The Court has also explained that every day's delay must be explained does not mean that a pedantic approach should be taken. The doctrine must be applied in a rational common sense and pragmatic manner. In the case of Shakuntala Hegde, L/R of R.K. Hegde v. ACIT, ITA No.2785/Bang/2004 for the A.Y. 1993-94, the Tribunal condoned the delay of about 1331 days in filing the appeal wherein the plea of delay in filing appeal due to advice given by a new counsel was accepted as sufficient. The Hon'ble Karnataka High Court in the case of CIT v. ISRO Satellite Centre, ITA No. 532/2008 dated 28.10.2011 has condoned the delay of five years in filing appeal before them which was explained due to delay in getting legal advice from its legal advisors and getting approval from Department of Science and PMO. In the aforesaid decision, the Hon'ble Court found that the very liability of the assessee was non-existent and therefore condoned the delay in filing appeal. Keeping in mind the aforesaid principles, we shall consider the claim of the assessee in the present case.
7. Admittedly, the delay was due to advice given by the counsel who appeared on behalf of the Assessee before the AO and CIT(A) not to file appeal and on advice from a professional from Mumbai to file an appeal, the appeal was filed. We find that there has been no willful neglect on the part of the Assessee. In such matters the advice of the professional would ITA No. 641/Bang/2017 Page 6 of 17 be the point of time at which the Assessee would begin to explore the option of exhausting all legal remedies. We are also of the view that by condonation of delay there is no loss to the revenue as legitimate taxes payable in accordance with law alone would be collected. We therefore accept the reason given for condonation of delay in filing the appeal. The delay in filing the appeal is accordingly condoned.
8. The only issue that arises for consideration in this appeal by the Assessee is with regard to the correctness of the action of the revenue authorities in disallowing deduction u/s.35(2AB) of the Income Tax Act, 1961 (Act) to the extent of Rs.17,91,22,735/- by the revenue authorities. The Assessee is a company engaged in the business of manufacture of automobiles and auto parts. For A.Y.2012-13 the assessee filed return of income on 27.09.2012 declaring loss of Rs.60,91,71,433/-. In the return so filed while computing income from business, the assessee had claimed weighted deduction u/s 35(2AB) of the Income Tax Act, 1961 (Act) at a sum of Rs.35,82,45,470/- being expenditure on scientific research and in- house research and development facility which is 200% of actual expenditure of Rs.17,91,22,735/-. Section 35(2AB) of the Act, in so far as it is relevant to the present appeal, reads thus:-
"Sec.35 Expenditure on scientific research.
In respect of expenditure on scientific research, the following deductions shall be allowed--
(2AB)(1) Where a company engaged in the business of bio-
technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (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 ITA No. 641/Bang/2017 Page 7 of 17 deduction of a sum equal to "two times" of the expenditure so incurred.
.....
(2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act.
(3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for cooperation in such research and development facility and for audit of the accounts maintained for that facility.
(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.
........."
9. Rule 6 of the Income Tax Rules, 1962 (Rules) prescribes procedure to be followed by the prescribed Authority for grant of approval u/s.35(2AB) of the Act. The relevant part of Rule 6, in so far as it relates to this appeal, reads thus:-
(1B) For the purposes of sub-section (2AB) of section 35, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research.
(4) The application required to be furnished by a company under sub-section (2AB) of section 35 shall be in Form No. 3CK.
(5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3CM :
Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application :"ITA No. 641/Bang/2017 Page 8 of 17
10. Under Section 35(1)(i) an Assessee is entitled to deduction in respect of expenditure on scientific research not being in the nature of capital expenditure laid out or expended on scientific research related to the business. Under Section 35(2AB) of the Act deduction is allowed at a sum equal to two times of the expenditure incurred on scientific research if the Assessee is engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (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. Deduction u/s.35(1)(i) and Sec.35(2AB) of the Act are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure, while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) of the Act and under Sec.35(2AB) of the Act are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) of the Act should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which Sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. Of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No.3CM as required by Rule 6 (5A) of the Rules. As per the procedure for claiming deduction u/s35(2AB) of the Act as per Department of Scientific and Industrial Research (DSIR) subsequent to the approval by the DSIR, the Assessee should submit audited accounts for each year for each approved scientific research centre ITA No. 641/Bang/2017 Page 9 of 17 by 31st October of the succeeding year along with certain information. Thereafter the DSIR will issue a form called Form 3CL.
11. The claim of the Assessee for weighted deduction at 200% of the expenditure incurred on scientific research was refused by the AO for the only reason that the Assessee did not get Form 3CL from DSIR. The AO, however, allowed deduction u/s.35(1)(i) at 100% of the expenditure on scientific research. Thus, by allowing deduction u/s.35(1)(i) of the Act, the AO has himself accepted that the Assessee has complied with all the other conditions for allowing deduction u/s.35(2AB) of the Act, except the condition that the Assessee has not obtained Form 3CL from DSIR. On appeal by the Assessee, the CIT(A) confirmed the order of the AO.
12. Aggrieved by the order of the CIT(Appeals), the Assessee has preferred the present appeal before the Tribunal. The issue that needs consideration in this appeal is as to; whether for the reason that Form No.3CL has not been obtained, can deduction u/s.35(2AB) of the Act can be denied to an Assessee?
13. We have heard the rival submissions. The learned DR relied on the order of the AO/CIT(A). The learned counsel for the Assessee reiterated submissions as were made before the revenue authorities and placed reliance on some judicial precedents on identical issue rendered by various benches of ITAT and Hon'ble High Courts.
14. For AY 2012-13, the previous year is FY 2011-12 i.e., the period from 1.4.2011 to 31.3.2012. The facts on record go to show that the Assessee's in-house R & D facilities was approved by the DSIR, Govt. of India, Ministry of Science and Technology for AY 2012-13 vide their letter dated 20.5.2009, a copy of which is placed at Page-30 of the Assessee's ITA No. 641/Bang/2017 Page 10 of 17 paper book. The approval is for the period 1.4.2009 upto to 31.3.2012. Therefore, the condition for allowing deduction u/s.35(2AB) of the Act has been fulfilled by the Assessee. The claim of the revenue, however, is that the approval by the prescribed authority in form No.3CM is not final and conclusive and the quantum of expenditure on which deduction is to be allowed is to be certified by DSIR in form No.3CL. There is no statutory provision in the Act which lays down such a condition. We shall therefore examine what is Form No.3CL.
15. DSIR has framed guidelines for approval u/s.35(2AB) of the Act. The guidelines as on May, 2010 which is relevant for AY 2012-13, in so far as it is relevant for the present appeal, was as given below.
(i) As per guideline 5 (iv) of the guidelines so framed, every company which has obtained an approval from the prescribed authority should also submit an undertaking as per Part C of Form No. 3CK to maintain separate accounts for each R&D centre approved under Section 35(2AB) by the Prescribed Authority, and to get the accounts duly audited every year by an Auditor as defined in sub- section (2) of section 288 of the IT Act 1961. (The statutory auditors of the Company should audit the R&D accounts. To facilitate this audit separate books of accounts for R&D should be maintained. Also, the statutory auditors should sign the auditors' certificate in the details required to be submitted as per annexure- IV of the guidelines to facilitate submission of Report in Form 3CL).
(ii) As per guideline 5(vi) of the guidelines, the audited accounts for each year maintained separately for each approved centre shall be furnished to the Secretary, Department of Scientific & Industrial Research by 31st day of October of the succeeding year, along with information as per Annexure-IV of the Guidelines.
(iii) As per guideline 5(ix) Expenditures, which are directly identifiable with approved R&D facility only, shall be eligible for the weighted tax deduction. However, expenditure in R&D on utilities which are supplied from a common source which also services areas of the plant other than R&D may be admissible, provided they are metered/measured and subject to certification by a Chartered Accountant.
ITA No. 641/Bang/2017 Page 11 of 17(iv) As per guideline 5 (x) Expenditure on manpower from departments, other than R&D centre, such as manufacturing, quality control, tool room etc. incurred on such functions as attending meetings providing advice / directions, ascertaining customer choice/response to new products under development and other liaison work shall not qualify for deduction under section 35(2AB) of I.T. Act 1961.
(v) As per guideline 10 Documents required to be submitted by 31st October of each succeeding year of approved period to facilitate submission of Report in Form 3CL (2 sets) are Complete details as per annexure-IV of DSIR guidelines.
16. The Assessee applied for issue of Form No.3CL to the appropriate authority on 24.3.2017, after the order of the CIT(A). The application so made by the Assessee is at page 43 to 65 of the Assessee's paper book. According to the Assessee, it has complied with all the requirements of the guidelines for issue of Form No.3CL, but the DSIR has issued Form No.3CL dated 5.4.2018 for AY 2014 & 15 & 2015-16 but no Form No.3CL was issued for AY 2012-13. Though there has been no communication to the Assessee in this regard, the learned counsel for the Assessee submitted that since the audited accounts were not submitted by 31st October of the succeeding AY, as is required under Guideline 5 (vi), the Assessee's application would not have been considered by the DSIR.
17. Rule-6(7A)(b) of the Rules specifying the prescribed authority and conditions for claiming deduction u/s.35(2AB) of the Act has been amended by the Income Tax (10th Amendment) Rules, 2016 w.e.f. 1.7.2016, whereby it has been laid down that the prescribed authority, i.e., DSIR shall quantify the quantum of deduction to be allowed to an Assessee u/s.35(2AB) of the Act. Prior to such substitution, the above provisions merely provided that the prescribed authority shall submit its report in relation to the approval of in-house R & D facility in Form No.3CL to the DGIT (Exemption) within 60 ITA No. 641/Bang/2017 Page 12 of 17 days of granting approval. Therefore prior to 1.7.2016 there was legal sanctity for Form No.3CL in the context of allowing deduction u/s.35(2AB) of the Act.
18. The issue as to whether deduction u/s.35(2AB) of the Act can be denied for absence of Form No.3CL by the DSIR was subject matter of several judicial decisions rendered by various Benches of ITAT.
(i) The Pune ITAT in the case of Cummins India Ltd. Vs. DCIT in ITA No.309/Pun/2014 for AY 2009-10 order dated 15.5.2018 had an occasion to consider a case where part of the claim for deduction u/s.35(2AB) of the Act was claimed supported by Form No.3CL but part of it was not supported by Form No.3CL. The Pune ITAT held as follows:-
"45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction ITA No. 641/Bang/2017 Page 13 of 17 claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below.
46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, then thereafter the role of Assessing Officer is to look into and allow the expenditure incurred on in-house R&D facility as weighted deduction under section 35(2AB) of the Act. Accordingly, we hold so. Thus, we reverse the order of Assessing Officer in curtailing the deduction claimed under section 35(2AB) of the Act by ₹ 6,75,000/-. Thus, grounds of appeal No.10.1, 10.2 and 10.3 are allowed."
(ii) The Hyderabad ITAT in the case of M/S. Sri Biotech Laboratories India Ltd. Vs. ACIT ITA No.385/Hyd/2014 for AY 2009-10 order dated 24.9.2014 took the view (vide Paragraph-13 of the order) that when the Assessee's R & D facility is approved the deduction u/s.35(2AB) of the Act cannot be denied merely on the ground that prescribed authority has not submitted report in Form 3CL.
19. The question of allowing deduction u/s.35(2AB) of the Act was considered by the Hon'ble Delhi High Court in the case of CIT vs. Sadan Vikas (India) Ltd. (2011) 335 ITR 117 (Del) where AO refused to accord the benefit of the weighted deduction to the assessee under s. 35(2AB) on the ground that recognition and approval was given by the DSIR in February/September, 2006, i.e., in the next assessment year and, therefore, the weighted deduction cannot be allowed. The CIT(A) confirmed the order of the AO. The Tribunal held that the assessee would be entitled to weighted deductions of the aforesaid expenditure incurred by ITA No. 641/Bang/2017 Page 14 of 17 the assessee in terms of the s. 35(2AB) of the Act and in coming to this conclusion, the Tribunal relied upon the judgment of Gujarat High Court in CIT vs. Claris Lifesciences Ltd. 326 ITR 251 (Guj). In its decision the Hon'ble Gujarat High Court held that the cut-off date mentioned in the certificate issued by the DSIR would be of no relevance. What is to be seen is that the assessee was in indulging in R&D activity and had incurred the expenditure thereupon. Once a certificate by DSIR is issued, that would be sufficient to hold that the assessee fulfils the conditions laid down in the aforesaid provisions. The Hon'ble Delhi High Court followed the decision of the Hon'ble Gujarat High Court and upheld the decision of the Tribunal. The Hon'ble Delhi High Court quoted the following observations of the Hon'ble Gujarat High Court and agreed with the said view:
"7. ... The lower authorities are reading more than what is provided by law. A plain and simple reading of the Act provides that on approval of the research and development facility, expenditure so incurred is eligible for weighted deduction.
8. The Tribunal has considered the submissions made on behalf of the assessee and took the view that section speaks of :
(i) development of facility;
(ii) incurring of expenditure by the assessee for development of such facility;
(iii) approval of the facility by the prescribed authority, which is DSIR; and
(iv) allowance of weighted deduction on the expenditure so incurred by the assessee.
9. The provisions nowhere suggest or imply that research and development facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the ITA No. 641/Bang/2017 Page 15 of 17 prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, come to the conclusion that on plain reading of s. itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up research and development facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction."
20. From the above discussion it is clear that prior to 1.7.2016 Form 3CL had no legal sanctity and it is only w.e.f 1.7.2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and Sec.35(2AB) of the Act are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) of the Act and under Sec.35(2AB) of the Act are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) of the Act should be engaged in manufacture of certain articles or things. It ITA No. 641/Bang/2017 Page 16 of 17 is not in dispute that the Assessee is engaged in business to which Sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. Of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No.3CM as required by Rule 6 (5A) of the Rules. In these facts and circumstances and in the light of the judicial precedents on the issue, we are of the view that the deduction u/s.35(2AB) of the Act ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the Assessee and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee.
21. In the result, appeal by the Assessee is allowed.
Pronounced in the open court on this 14th day of September, 2018.
Sd/- Sd/-
( INTURI RAMA RAO ) ( N.V. VASUDEVAN)
Accountant Member Judicial Member
Bangalore,
Dated, the 14th September, 2018.
/ Desai Smurthy /
ITA No. 641/Bang/2017
Page 17 of 17
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.