Omni Active Health Technologies Ltd Vs ACIT (ITAT Mumbai)
The issue under consideration is whether the deduction u/s 35(2AB) towards research and development expenditure claimed by assessee is justified in law?
In present case, the assessee claimed deduction u/s 35(2AB) being 200% of amount incurred towards scientific research. The perusal of approvals from DSIR in Form No.3CM and working of deduction u/s 35(2AB) as per return of income and as per Form No. 3CL reflected difference of Rs.10.54 Lacs. Accordingly, the same was disallowed and added to the income of the assessee.
ITAT states that as per sub-section (2AB), it is provided that facility has to be approved by the prescribed authority, then there shall be allowed deduction of expenditure incurred whether 100%, 150% or 200% as prescribed from time to time. Under the amended provisions, the prescribed authority as in part A give approval of the facility and in part B quantify the expenditure eligible for deduction under section 35(2AB) of the Act. The issue which is raised before us relates to pre-amended provisions and question is where the facility has been approved by the prescribed authority, can the deduction be denied to the assessee under section 35(2AB) of the Act for non issue of form No.3CL by the said prescribed authority or the power is with the Assessing Officer to look into the nature of expenditure to be allowed as weighted deduction under section 35(2AB) of the Act.
Further they state that the approval was granted during the previous year, the Assessee was entitled to claim weighted deduction in respect of the entire expenditure incurred under Section 35(2AB) of the Act by the Assessee. It was observed that the legislative intention behind the enactment of Section 35(2AB) was to boost up facility in India and 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 amendment to rules was 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.
Therefore, ITAT allowed the deduction u/s 35(2AB) in the pre-amended period.
FULL TEXT OF THE ITAT JUDGEMENT
Aforesaid appeal by assessee for Assessment Year [in short referred to as ‘AY’] 2014-15 contest certain additions / adjustment made in final assessment order dated 17/10/2018 passed by Ld. Assistant Commissioner of Income Tax-7(3)(1), Mumbai [AO] u/s. 143(3) r.w.s. 144C(13), pursuant to the directions of Dispute Resolution Panel-2, Mumbai, [in short referred to as DRP], u/s 144C(5) dated 24/09/2018. The grounds raised read as under: –
1:0 Transfer Pricing Adjustment of INR 11,20,79,641/- to the internat onal transact on relating to export of goods
1:1 The learned Assessing Officer (“AO”)/ Transfer Pricing Officer (“TPO”)/ Dispute Resolution Panel (“DRP”) has erred in making an upward adjustment of INR 11,20,79,641/- to the total income of the Appellant by holding that the international transaction relating to the export of goods entered into by the Appellant with its Associated Enterprise (“AE”) was not at arm’s length.
1:2 The learned AO/TPO/DRP erred in rejecting Transactional Net Margin Method (“TNMM”) which was determined by the Appellant as the most appropriate method as per provisions of section 92C(1) of the Act.
1:3 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the international transaction relating to export of goods entered into by the Appellant with its AE was at arm’s length and hence no adjustment in respect thereof was called for and the stand taken by the learned AO/TPO/DRP in this regard is misconceived, erroneous and incorrect.
1:4 The Appellant submits that the learned AO be directed to delete the upward adjustment of INR 112,079,641/- made by him to the Appellant’s total income and to re-compute its total income and tax liability accordingly.
2:0 Transfer Pricing Adjustment of INR 1.20.969/- to the international transact on relating to Corporate Guarantee
2:1 The learned AO/TPO/DRP has erred in making an upward adjustment of INR 1,20,969/- to the total income of the Appellant by holding that the transaction relating to corporate guarantee entered into by the Appellant with its AE was not arm’s length.
2:2 The Appellant submits that the learned AO/TPO/DRP has erred in applying the rate of guarantee commission on the entire amount of guarantee of Rs.15,19,00,000 instead of restricting the adjustment only on the actual amount of loan utilized by the AE from the overseas bank during the year.
2:3 Considering the facts and circumstances of its case and the law prevailing on the subject the international transaction relating to corporate guarantee entered into by the Appellant with its AE was at arm’s length and hence no adjustment in respect thereof was called for and the stand taken by the learned AO/TPO/DRP in this regard is misconceived, erroneous and incorrect.
2:4 The Appellant submits that the learned AO be directed to delete the upward adjustment of INR 120,969/- made by him to the Appellant’s total income and to re¬compute its total income and tax liability accordingly.
3:0 Not grant ng deduction of INR 10 54 524/- being the weighted deduction allowable u/s. 35(2AB) of the Act
3:1 The AO/ DRP has erred in not granting deduction of INR 10,54,524/- incurred towards research and development expenditure, claimed u/s. 35(2AB) of the Act.
3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the AO ought to have granted weighted deduction under section 35(2AB) of the Act as the R&D “facility” has been approved by the DSIR and hence the stand taken by the AO/DRP in this connection is misconceived, erroneous and incorrect.
3:3 The Appellant submits that the AO be directed to grant entire deduction of the expenses incurred by the Appellant u/s. 35(2AB) of the Act and to re-compute its total income and tax thereon accordingly.
1.2 The income of the assessee has been determined at Rs.1425.98 Lacs after certain Transfer Pricing (TP) Adjustments of Rs.1122 Lacs as against returned income of Rs.293.43 Lacs filed by the assessee on 30/11/2014. The weighted deduction of Rs.10.54 Lacs claimed by the assessee u/s 35(2AB) has also been denied to the assessee. Aggrieved, the assessee is under further appeal before us. The assessee is stated to be engaged in the field of Natural APIs and Novel delivery systems for nutrients and active ingredients. The assessee has established an international reputation for its range of active natural ingredients for healthcare, food and personal care applications.
1.3 The perusal of material on record would reveal that a draft assessment order was passed by Ld. AO on 28/12/2017 pursuant to the order of Ld. Transfer Pricing Officer-3(1)(1), Mumbai (TPO) dated 27/10/2017. The assessee preferred objections against the same before Ld. DRP which were disposed-off vide directions dated 24/09/2018. Pursuant to the said directions, final assessment order was passed on 17/10/2018 incorporating the proposed adjustments / Against this order, the assessee is under appeal before us.
1.4 We have carefully heard the arguments advanced by both the representatives and perused relevant material on record. The Ld. Authorized Representative for Assessee (AR), placed on record ground-wise chart to submit that substantial issues are covered by the earlier order of the Tribunal in assessee’s own case. The copy of Tribunal order ITA Nos. 638 & 4643/Mum/2017 for AYs 2012-13 & 2013-14 common order dated 06/03/2018 has been placed on record.
In the above background, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs.
Transfer Pricing Adjustments
2. The perusal of the order of Ld. TPO passed u/s 92CA(3) on 27/10/2017 would reveal that following Transfer Pricing adjustments (TP) has been proposed therein: –
