Income Tax Appellate Tribunal - Kolkata
M/S. Texmaco Rail & Engineering Ltd., ... vs Pcit-2, Kolkata, 3Rd Floor, Aayakar ... on 13 September, 2017
ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 1
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH 'C' KOLKATA
[Before Hon'ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ]
ITA No.1089/Kol/2017
Assessment Year : 2012-13
M/s. Texmaco Rail & Engineering Ltd. -versus- Pr. C.I.T.-2,
Kolkata Kolkata
(PAN: AABCT 2592 E)
(Appellant) (Respondent)
For the Appellant: Shri S.K.Tulsiyan, Advocate
For the Respondent: Shri G.Mallikarjuna, CIT(DR)
Date of Hearing : 07.09.2017.
Date of Pronouncement : 13.09.2017.
ORDER
PER N.V.VASUDEVAN, JM:
This is an appeal by the Assessee against the order dated 30.03.2017 of Principal C.I.T.-2, Kolkata passed u/s 263 of the Income Tax Act, 1961 (Act.) relating to A.Y.2012-13.
2. The Assessee is a company engaged in the business of manufacture of wagons for Indian railways and private parties. For A.Y.2012-13 the assessee filed return of income on 30.09.2012 which was later revised by a revised return of income on 28.03.2014. In the return so filed while computing income from business, the assessee had claimed deduction u/s 35(2AB) of the Act at a sum of Rs.2,70,07,240/- being expenditure on scientific research and in house research and development facility. Sec.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 ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 2 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.
.....
(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.
........."
"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 :"
The deduction u/s 35(2AB) of the Act is allowed at a sum equal to two times of the expenditure incurred on scientific research. The condition required to be fulfilled 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). The claim of the assessee for deduction as above was supported by a certificate of registration by DSIR dated 14.07.2010. The AO while completing the assessment allowed the claim of the assessee for deduction u/s 35(2AB) of the Act.ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 3
3. The CIT in exercise of his powers u/s 263 of the Act was of the view that the aforesaid order of the AO allowing deduction to the assessee u/s 35(2AB) of the Act was erroneous and prejudicial to the interest of the revenue. The CIT issued a show cause notice dated 10.03.2017 u/s 263 of the Act to the assessee on the ground that apart from the approval of DSIR the assessee is also required to file Form 3CM as stipulated under Rule 6(5A) of the I.T.Rules, 1962 (Rules), this was not submitted by the assessee. The AO without insisting on the form no.3CM ought not to have allowed the deduction u/s 35(2AB) of the Act.
4. In reply to the show cause notice issued by the CIT u/s.263 of the Act, the assessee vide its reply dated 20.03.2017 filed copies of Certificates of Recognition of In-house R & D facility issued by the prescribed authority of Govt. of India for the following periods:
(a) For the period from April 1, 2010 to March 31,2013;
(b) For the period from April 1, 2013 to March 31,2016; and
(c) For the period from April 1,2016 to March 31, 2019.
It was further explained that the Assessee had in earlier years claimed deduction on the basis of certificate granted by DSIR. For the first time in F.Y. 2015-16, the Revenue insisted upon production of Form 3CM which was then applied for F.Y. 2015-16 and earlier Financial Years. The approval in Form 3CM was granted by DSIR for F.Y. 2015-16, which was filed before the C.I.T. and the applications for obtaining Form 3CM of earlier years (including the AY 2012-13) are pending with DSIR. It was further explained that whatever information was required by Form 3CM as stipulated in Rule 6(5A) of I.T. Rules was otherwise available in the Certificate of Recognition granted to the assessee by DSIR. Therefore, merely because of a technical defect that such certificate was not in Form 3CM, the assessee cannot be deprived in getting the deduction which was otherwise entitled under the law.
5. In support of the said claim, the assessee also relied on the decisions of Hon 'ble Delhi High Court in the case of CIT vs. Sadan Vikas (India) Ltd. (2011) 335 ITR 117 ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 4 (Del) and Hon'ble I.T.A.T. Mumbai in the case of ACIT vs. Meco Instruments (P) Ltd. (2010) 7 taxmann.com 24 (Mum). In the case of Sadan Vikas (India) Ltd., the Hon'ble Delhi High Court was dealing with a case 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 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 fulfills 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.ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 5
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 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."
The Assessee thus submitted that there is no error in the order of the AO and jurisdiction u/s.263 of the Act cannot be invoked in the facts and circumstances of the case.
6. The CIT however was not convinced with the aforesaid reply of the Assessee. He held that the deduction granted by the A.O. to be erroneous and set aside the matter back to him for fresh consideration. Aggrieved by the order of the CIT, the Assessee is in appeal before the Tribunal.
7. The learned counsel for the Assessee that there was no dispute to the facts that the assessee had set up the Inhouse Research & Development facility in its Belgharia Unit and had incurred expenditure on scientific research. In respect of the said facility, recognition was granted by DSIR. It was also not disputed that the assessee all along proceeded on the premise that the said recognition by DSIR was sufficient for the purpose of claiming weighted deduction u/s.35(2AB) of the Act and the same was ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 6 accepted in all the past assessments. It was his submission that the action of the CIT in resorting to the powers u/s.263 of the Act was purely based on the non furnishing of Form 3CM as stipulated in Rule 6(5A) of the Rules. It was submitted by him that whatever information is required for granting weighted deduction u/s 35(2AB) of the Act were all otherwise available in the Certificate of Recognition granted to the assessee by DSIR on submission of Form 3CK for registration u/s 35(2AB) of the Act before them. He also highlighted as to how the revenue for the first time in F.Y. 2015- 16 insisted upon production of Form 3CM which was then applied for F.Y. 2015-16 and earlier Financial Years. The approval in Form 3CM was granted by DSIR for F.Y. 2015-16, which was filed before the Ld. Pr. C.I.T. and such approval for earlier years by DSIR has not been disposed off as yet.
8. The learned counsel submitted that weighted deduction u/s 35AB for scientific research is given on recognition from the specified authority being Department of Scientific and Industrial Research (DSIR). In this case, such recognition was granted by DSIR and copies of Certificates of Registration from April 1, 2010 to March 31, 2019 issued by DSIR were filed before the C.I.T. The assessee also filed copy of order of approval in prescribed Form 3CM for subsequent F.Y. 2015-16 issued by DSIR. The only ground on the basis of which the CIT proceeded to invoke powers u/s.263 of the Act was the absence of approval in Form 3CM for F.Y. 2011-12 relevant to A.Y. 2012-13 under appeal. It was his submission that this cannot be a valid ground for rejection of deduction u/s.35(2AB) of the Act. He relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sadan Vikas (India) Ltd. (supra), following the decision in CIT v. Claris Life Sciences Ltd. [2010] 326 ITR 251 (Guj), 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. It was, therefore, held that the approval was received only for subsequent year should not come in the way of the deduction, which is otherwise well-merited, consistent with the object of such weighted deduction. He also relied on ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 7 the decision of the Hon'ble I.T.A.T., Mumbai in the case of ACIT vs. Meco Instruments (P) Ltd. (2010) 7 taxmann.com 24 (Mum), wherein it was held as under:
"It is pertinent to note that this section [35(2AB)] talks of only approval of the prescribed authority but nowhere in the section the phrase 'as prescribed' has been used. Therefore, if the approval simpliciter is available from the prescribed authority, then as per this section, no objection could be raised. However, sub-section (4) of section 35 requires the prescribed authority to submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed. Therefore, it would be too technical to hold that merely because the term (prescribed' has not been used in section 35(2AB)(i) it follows that there was no prescribed rules for the same. However. at the same time. absence of phrase 'prescribed' in section 35(2AB)(i) mitigates the assessee's default. .................... A close reading of the said section read with rule 6 would reveal that nowhere any time has been prescribed within which the application is required to be filed by the assessee company. Further, nowhere, any condition has been prescribed regarding cut off date from which the approval could be made effective. Therefore, once the assessee company is granted approval it will apply till it is revoked with reference to all the assessment years. which come within the ambit of that period. Therefore, mere mentioning of 1-4-2007 in the order dated 28-8-2008 was of no consequence and the approval granted in Form 3CM was also applicable for assessment year 2005-06." (Emphasis supplied)
9. The learned counsel for the Assessee relied on the following observations of Hon'ble Apex Court in the case of Malabar Industrial Vo. Ltd. vs. CIT, (2000) 243 ITR 83 (SC) :
"Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. "
It was submitted by him that the view taken by the AO in allowing weighted deduction u/s.35(2AB) of the Act to the Assessee was a possible view taken in tune ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 8 with the judicial pronouncements and the CIT cannot term the order of the AO as erroneous.
10. The ld. DR relied on the order of CIT. In particular it was pointed out by him that in the case decided by the Hon'ble High Court and the Tribunal referred to by the ld. Counsel for the assessee, the assessee had submitted the required application for grant of approval in Form No.3CM whereas the assessee in the present case had not filed any such application. It was pointed out that it was only after the issue of show cause notice u/s 263 of the Act that the assessee made such an application. It was submitted by him that the decisions cited by the ld. Counsel for the assessee are therefore distinguishable on facts.
11. We have given a very careful consideration to the rival submissions. We are of the view that in the facts and circumstances of the present case, the CIT ought not to have exercised jurisdiction u/s.263 of the Act and set aside the order of the AO. It is undisputed that Department of Scientific and Industrial Research (DSIR) granted recognition to the Assessee for the period from April 1st, 2010 to 31st March, 2019. It has been held in the decision referred to by the learned counsel for the Assessee in the proceedings before the CIT u/s.263 of the Act and before the Tribunal that deduction Sec.35(2AB) read with rule 6 does not prescribe any time limit within which application for approval in form No.3CM has to be made. Once approval is granted by DSIR the same would apply till it is revoked. The Hon'ble Gujarat High Court and the Hon'ble Delhi High Court in the case of Claris Lifesciences Ltd., and Sadan Vikas (India) Ltd., have taken the view that on a plain and harmonious reading of rule 6(5A) and Form No. 3CM it would be appropriate to come to a conclusion once a research 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). In the light of the aforesaid judicial pronouncements, it cannot be said that the order of the AO was erroneous. Even if it were to be said that the view taken by the Courts and Tribunal are not correct, the said views were a possible view. Once the view ITA No.1089/Kol/2017 - M/s. Texmaco Rail & Engineering Ltd. A.Y.2012-13 9 taken by the AO is either correct or a possible view then the CIT in exercise of his powers u/s.263 of the Act cannot hold the order of the AO to be erroneous just because he does not agree with the view of the AO. Since the primary condition for exercise of jurisdiction u/s.263 of the Act viz., the order of the AO should be erroneous is absence in the present case, we are of the view that the order u/s.263 of the Act is unsustainable and the same is hereby quashed. The appeal of the Assessee is allowed.
12. In the result, appeal of the Assessee is allowed.
Order pronounced in the Court on 13.09.2017.
Sd/- Sd/-
[Waseem Ahmed] [ N.V.Vasudevan ]
Accountant Member Judicial Member
Dated : 13.09.2017.
[RG PS]
Copy of the order forwarded to:
1.M/s. Texmaco Rail & Engineering Ltd., Birla Building, 6th Floor, 9/1, R.N.Mukherjee Road, Kolkata-700001.
2.Pr. C.I.T.- 2, Kolkata.
3. CIT(DR), Kolkata Benches, Kolkata.
True Copy By order, Senior Private Secretary Head of Office/D.D.O, ITAT Kolkata Benches