THE ACIT,, Vijayawada v. Efftronic Systems Pvt., Ltd.,, Vijayawada

ITA 216/VIZ/2015 | 2011-2012
Pronouncement Date: 21-10-2016 | Result: Dismissed

Appeal Details

RSA Number 21625314 RSA 2015
Assessee PAN AAACE4879Q
Bench Visakhapatnam
Appeal Number ITA 216/VIZ/2015
Duration Of Justice 1 year(s) 4 month(s) 19 day(s)
Appellant THE ACIT,, Vijayawada
Respondent Efftronic Systems Pvt., Ltd.,, Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 21-10-2016
Assessment Year 2011-2012
Appeal Filed On 01-06-2015
Judgment Text
ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM . . $ BEFORE SHRI V. DURGA RAO JUDICIAL MEMBER & SHRI G. MANJUNATHA ACCOUNTANT MEMBER ./I.T.A.NOS.188/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) M/S. EFFTRONICS SYSTEMS PVT. LTD. VIJAYAWADA VS. ACIT RANGE - 2 VIJAYAWADA [PAN: AAACE4879Q ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NOS.216/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) ACIT CIRCLE - 2(1) VIJAYAWADA VS. M/S. EFFTRONICS SYSTEMS PVT. LTD. VIJAYAWADA ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM AR / RESPONDENT BY : SHRI G. GURUSAMY CIT(DR) / DATE OF HEARING : 22.09.2016 / DATE OF PRONOUNCEMENT : 21.10.2016 ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 2 / O R D E R PER G. MANJUNATHA ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL A S REVENUE ARE DIRECTED AGAINST ORDER OF CIT(A) VIJAYAWADA DATED 30.3.2015 AND IT PERTAINS TO THE ASSESSMENT YEAR 2011-12. SINCE TH E FACTS ARE IDENTICAL AND ISSUES ARE COMMON THEY ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SELLING ELECTRONIC MOVING DISPLAY BOARDS DATA LOGGERS AND ELECTRONIC SYSTEMS ETC. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT Y EAR 2011-12 ON 14.9.2011 ADMITTING TOTAL INCOME OF RS.21 50 620/- UNDER NORMAL PROVISIONS AND RS.2 03 94 650/- UNDER THE PROVISION S OF SECTION 115JB OF THE INCOME TAX ACT 1961 (HEREINAFTER CALLED AS TH E ACT). THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT AND SUBSEQUENTL Y THE CASE HAS BEEN TAKEN UP FOR SCRUTINY ASSESSMENT AND ACCORDING LY NOTICE U/S 143(2) OF THE ACT WAS ISSUED. IN RESPONSE TO NOTIC ES THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FURNISHED BOOKS OF ACCOUNTS AND OTHER RELEVANT DETA ILS CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. OBSE RVED THAT THE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 3 ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT TOWARDS RESEARCH AND DEVELOPMENT EXPENDITURE INCURR ED IN THEIR IN HOUSE R&D FACILITY. THEREFORE TO ASCERTAIN THE CO RRECTNESS OF THE CLAIM MADE BY THE ASSESSEE ISSUED NOTICE AND ASKED TO FU RNISH THE DETAILS OF R&D FACILITY AND NATURE OF RESEARCH CARRIED OUT IN THE R&D FACILITIES ALONG WITH NECESSARY APPROVALS FROM THE COMPETENT AUTHORI TY. 3. IN RESPONSE TO SHOW CAUSE NOTICE THE ASSESSEE S UBMITTED THAT IT IS IN THE BUSINESS OF MANUFACTURING AND SUPPLY OF MOVI NG DISPLAY BOARDS DATA LOGGERS AND ELECTRONIC SYSTEMS ETC. TO INDIAN RAILWAYS. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS SET UP A RES EARCH AND DEVELOPMENT FACILITY WHICH WAS APPROVED BY THE SECR ETARY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT. THE ASSESSEE FURTHER S UBMITTED THAT THE GOODS MANUFACTURED BY IT HAS BEEN SUPPLIED TO INDIA N RAILWAYS AND INDIAN RAILWAYS IS USING THESE PRODUCTS TO CONTROL AND MONITOR SMOOTH MOVEMENT OF TRAINS AND ALSO DISPLAY OF ARRIVAL AND DEPARTURE DETAILS OF TRAINS. THESE EQUIPMENTS WERE MANUFACTURED AS PER THE DESIGN SUPPLIED BY THE RESEARCH DESIGNS AND STANDARD ORGAN IZATION (RDSO) OF THE INDIAN RAILWAYS AND THESE EQUIPMENTS WERE SPECI FICALLY DESIGNED FOR THE PURPOSE OF INDIAN RAILWAYS. IT WAS FURTHER SUB MITTED THAT ITS FACILITY HAS BEEN APPROVED BY THE COMPETENT AUTHORITY AFTER SATISFIED WITH THE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 4 CONDITIONS PRESCRIBED UNDER THE PROVISIONS OF SECTI ON 35(2AB) OF THE ACT THEREFORE IT HAS RIGHTLY CLAIMED WEIGHTED DEDUCTIO N OF 200% U/S 35(2AB) OF THE ACT. 4. THE A.O. AFTER CONSIDERING THE EXPLANATIONS OF T HE ASSESSEE HELD THAT THE GOODS MANUFACTURED BY THE ASSESSEE ARE LIS TED IN THE ELEVENTH SCHEDULE AT ITEM NO.22 BEING IN THE NATURE OF OFFI CE MACHINES AND APPARATUS SUCH AS TYPE WRITERS CALCULATING MACHINE S CASH REGISTERING MACHINES CHEQUE WRITING MACHINES INTERCOM MACHINE S AND TELE PRINTERS. THE A.O. FURTHER OBSERVED THAT THE GOODS MANUFACTURED BY THE ASSESSEE ARE NOTHING BUT OFFICE MACHINES AND APPARA TUS LISTED IN ELEVENTH SCHEDULE AT ITEM NO.22 THEREFORE ANY COM PANY WHICH IS INVOLVED IN MANUFACTURING OR PRODUCTION OF ANY ARTI CLE OR THING EXCEPT THOSE SPECIFIED IN THE 11 SCHEDULE IS ELIGIBLE FOR WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT. BUT THE ASSESSEE IS INVOLVED IN MANUFACTURING OF GOODS LISTED IN ELEVENTH SCHEDULE THEREFORE IT IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER THE PROVISIONS OF SECTION 35(2AB) O F THE ACT. THE A.O. FURTHER OBSERVED THAT IN VIEW OF THE ABOVE PROVISIO NS EVEN IF AN ASSESSEES IN HOUSE R&D FACILITY APPROVED BY THE CO MPETENT AUTHORITY BUT IF SUCH ASSESSEE IS INVOLVED IN MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING AS SPECIFIED IN 11 SCHEDULE IT MAK ES THE ASSESSEE INELIGIBLE FOR MAKING ANY CLAIM U/S 35(2AB) OF THE ACT. WITH THESE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 5 OBSERVATIONS DISALLOWED THE CLAIM MADE BY THE ASSE SSEE. SIMILARLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A. O. OBSERVED THAT THE ASSESSEE HAS FAILED TO DEDUCT TDS IN RESPECT OF DIRECT EXPENSES. AS PER THE PROVISION OF SECTION 194C OF THE ACT TDS I S OUGHT TO HAVE DEDUCTED ON SUCH PAYMENTS WHERE THE PAYMENTS EXCEE D RS.30 000/- DURING THE FINANCIAL YEAR. SINCE THE ASSESSEE FAIL ED TO DEDUCT TDS THE AMOUNT OF RS.3 57 463/- IS DISALLOWED UNDER THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT. SIMILARLY THE A.O. HAS DISA LLOWED BANK GUARANTEE CHARGES INCURRED BY THE ASSESSEE FOR NON-DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194H OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE CIT(A) FO R THE REASONS RECORDED CONFIRMED ADDITIONS MADE BY THE A.O. TOWA RDS WEIGHTED DEDUCTIONS UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT. THE CIT(A) FURTHER HELD THAT ONE OF THE CONDITIONS LAID DOWN U/S 35(2AB) OF THE ACT THAT THE ASSESSEE SHOULD BE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING EXCEPT THOSE SPECIFIED IN THE 11 SCHEDULE. IN THE PRESENT CASE ON HAND A S PER THE INFORMATION PROVIDED BY THE DRM (S&D) VIJAYAWADA THE INSTRUME NTS MANUFACTURED BY THE ASSESSEE ARE IN THE NATURE OF OFFICE MACHINE S AND APPARATUS ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 6 BEING USED IN RAILWAY STATIONS. THE ASSESSEE FAILE D TO PROVIDE ANY CONVINCING MATERIAL FACTS ON RECORD TO THE CLAIM TH AT THE INSTRUMENTS/ARTICLES MANUFACTURED DOES NOT FALL UND ER THE ELEVENTH SCHEDULE. AS REGARDS DISALLOWANCE OF DIRECT EXPENS ES UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT THE CIT (A) HELD THAT THE ASSESSEE HAS FAILED TO DEDUCT TDS ON PAYMENT MADE T O CONTRACTORS UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. S INCE THE ASSESSEE FAILED TO DEDUCT TDS THE A.O. HAS DISALLOWED THE A MOUNT BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. WI TH THESE OBSERVATIONS UPHELD THE DISALLOWANCE MADE BY THE A.O. AS REGARD S DISALLOWANCE OF BANK GUARANTEE CHARGES THE CIT(A) HELD THAT SINCE THE ASSESSEE CLAIMS TO HAVE MADE THE TOTAL PAYMENT WITHIN THE END OF TH E FINANCIAL YEAR IN VIEW OF THE SPECIAL BENCH DECISION OF ITAT IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT REPORTED IN 136 ITD 23 SET ASIDE THE ISSUE TO THE FILE OF THE A.O. AND DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF AMOUNT REMAINS PAYABL E AT THE END OF THE FINANCIAL YEAR. AGGRIEVED BY THE CIT(A) ORDER THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS REJECTION OF WEIGHTED DEDUCTION CLAIMED UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT. THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE IS IN THE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 7 BUSINESS OF MANUFACTURING OF VARIOUS ELECTRONIC SYS TEMS DATA LOGGERS AND ELECTRONIC MOVING DISPLAY BOARDS ETC. SUPPLIED TO INDIAN RAILWAYS. THE ITEMS MANUFACTURED BY THE ASSESSEE COMPANY ARE USED FOR INDIAN RAILWAYS MAINLY IN SIGNALING AND SAFETY SYSTEM FOR SMOOTH OPERATION AND SAFE RUNNING OF TRAINS. THE OTHER ITEMS SUPPLIED B Y THE ASSESSEE COMPANY ARE (1) TRACK MONITORING SYSTEMS (2) WATER LEVEL MONITORING SYSTEM (3) TRAIN INFORMATION SYSTEM (4) DATA LOGGER S (5) WRONG OPERATION INDICATION SYSTEM (6) RRI TEST ETC. THE ASSESSEE HAS ESTABLISHED IN HOUSE RESEARCH AND DEVELOPMENT FACIL ITY TO CONTINUOUS IMPROVEMENT OF THE PRODUCTS MANUFACTURED TO SUIT TH E NEEDS OF INDIAN RAILWAYS. THE R&D FACILITY IS OWNED BY THE ASSESSE E IS APPROVED BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH M INISTRY OF SCIENCE AND TECHNOLOGY GOVERNMENT OF INDIA. DURING THE FINANC IAL YEAR RELEVANT TO ASSESSMENT YEAR 2011-12 THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.1 85 88 745/- TOWARDS REVENUE EXPENDITURE AND A SUM OF RS.25 22 566/- UNDER CAPITAL EXPENDITURE. THE ASSE SSEE HAS CLAIMED WEIGHTED DEDUCTION OF 200% ON TOTAL EXPENDITURE INC URRED TOWARDS R&D. THE EXPENDITURE CLAIMED BY THE ASSESSEE HAS B EEN APPROVED BY THE DIRECTOR OF SCIENTIFIC AND INDUSTRIAL RESEARCH. 7. THE A.O. DISALLOWED THE CLAIM OF WEIGHTED DEDUCT IONS U/S 35(2AB) OF THE ACT FOR THE REASONS THAT THE ITEMS MANUFACT URED AND SUPPLIED BY ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 8 THE ASSESSEE TO INDIAN RAILWAYS ARE IN THE NATURE O F OFFICE MACHINES AND APPARATUS USED IN RAILWAY STATIONS FOR OFFICE WORK AND FOR DATA PROCESSING THEREFORE THESE ITEMS ARE CLEARLY FALL ING IN ELEVENTH SCHEDULE. THE A.O. FURTHER OBSERVED THAT THE DATA LOGGERS ELECTRONIC ITEMS AND ELECTRONIC MOVING DISPLAY BOARDS ARE NOTH ING BUT OFFICE MACHINES AND APPARATUS THEREFORE THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 35(2AB) OF THE ACT. THE A.O . HAS MADE ELABORATE DISCUSSIONS ON THE PROVISIONS OF SECTION 35(2AB) OF THE ACT ELEVENTH SCHEDULE AND ITEMS MANUFACTURED BY THE ASS ESSEE. THE A.O. RELIED UPON THE LETTER WRITTEN BY THE RAILWAY MANAG ER (S&D) VIDE HIS LETTER DATED 28.2.2014 AND OPINED THAT THE ITEMS MA NUFACTURED BY THE ASSESSEE ARE PRIMARILY INSTALLED IN RAILWAY STATION S TO MONITOR MOVEMENT OF TRAINS AND ALSO SIGNALS FOR SMOOTH MOVEMENT OF T RAINS. THE A.O. FURTHER OBSERVED THAT THE DATA LOGGERS INSTALLED IN THE RAILWAY STATIONS STORES DATA REGARDING CHANGES THAT TAKE PLACE IN RE LAYS AC/DC VOLTAGES AND DC CURRENT. ACCORDING TO THE A.O. THE ITEMS M ANUFACTURED BY THE ASSESSEE I.E. DATA LOGGERS AND ELECTRONIC MOVING DI SPLAY BOARDS ARE FALLING IN ELEVENTH SCHEDULE BEING OFFICE MACHINES SUCH AS TYPE WRITERS CALCULATING MACHINES CASH REGISTERING MACHINE WHIC H CAN CHEQUE WRITING MACHINES INTERCOM MACHINES AND TELE PRINTE RS. THE A.O. HAS TAKEN CLUE FROM THE ELEVENTH SCHEDULE AND STATED TH AT THE EXPRESSION ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 9 OFFICE MACHINES AND APPARATUS INCLUDES ALL MACHINES AND APPARATUS USED IN OFFICE SHOPS FACTORIES WORKSHOPS EDUCATIONAL INSTITUTIONS RAILWAY STATIONS HOTELS AND RESTAURANTS FOR DOING OFFICE WORK AND FOR DATA PROCESSING. SINCE THE ITEMS MANUFACTURED BY THE A SSESSEE ARE IN THE NATURE OF OFFICE EQUIPMENTS OPINED THAT THE ITEMS ARE FALLING WITHIN THE ELEVENTH SCHEDULE THEREFORE ASSESSEE IS NOT ELIGI BLE FOR DEDUCTION U/S 35(2AB) OF THE ACT. 8. IT IS THE CONTENTION OF THE ASSESSEE THAT THE GO ODS MANUFACTURED BY IT ARE SPECIALLY MADE ITEMS AS PER THE SPECIFICA TION PROVIDED BY THE INDIAN RAILWAYS RESEARCH DESIGN & STANDARD ORGANIZA TION (RDSO) AND RDSO WILL DESIGN THE SPECIFICATION REQUIRED FOR CER TAIN UNITS TO BE INSTALLED AT VARIOUS RAILWAY STATIONS WHICH ARE ASS ISTED IN CONTROLLING THE MOVEMENT OF RAILWAYS. ALL THE ITEMS SUPPLIED BY US WERE INSTALLED AT VARIOUS RAILWAY STATIONS. THESE ITEMS WILL HELP TH E INDIAN RAILWAYS TO RUN THE TRAIN SAFELY. THE DATA LOGGERS RECORDS THE SIGNALING RELAYS ON A MEMORY AND STORES EVENTS DATA WHICH IS TRANSFERRED TO SERVER INSTALLED IN SIGNALING TEST ROOMS AT DIVISIONAL HEAD QUARTERS WHICH ARE USEFUL FOR ANALYZING THE FAILURES AND ACCIDENTS. THE ASSESSEE FURTHER CONTENDED THAT THE ITEMS MANUFACTURED BY IT ARE USED BY THE I NDIAN RAILWAYS FOR SMOOTH RUNNING OF TRAINS AND TO AVOID ACCIDENTS AND TO DATA STORAGE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 10 THEREFORE BY ANY STRETCH OF IMAGINATION THESE ITE MS CAN BE CATEGORIZED AS OFFICE MACHINES LISTED IN ELEVENTH SCHEDULE. 9. THE ASSESSEE HAS MADE ELABORATE WRITE UP ON ITEM S MANUFACTURED. ACCORDING TO THE ASSESSEE DATA LOGGERS CONSIST OF VARIOUS EQUIPMENTS/THINGS LIKE SIGNALS TRACK POINTS ETC. THESE ITEMS ARE USED FOR SAFE MOVEMENT OF TRAINS AND TO COORDINATE BETWE EN THE PILOTS FOR ARRIVAL AND DEPARTURE OF TRAINS. THE COORDINATION IS CALLED SIGNALING INTERLOCKING. THE SYSTEM PROVIDES THE STATUS OF VA RIOUS DIGITAL OPERATIONS WHERE THE SIGNAL IS ON OR OFF RELAY IS UP OR DOWN THE FUSE IS INTACT. FURTHER DATA LOGGERS PROVIDES THE STATU S OF VARIOUS VOLTAGES SUCH AS THE TRACK CIRCUIT VOLTAGE AC VOLTAGE DC V OLTAGE OR HIGH FREQUENCY AXLE CHANNEL VOLTAGES WITH ACCURACY. IT WAS FURTHER SUBMITTED THAT THESE ITEMS WERE MANUFACTURED WITH A CONTINUOU S PROCESS OF RESEARCH AND DEVELOPMENT TO MEET THE QUALITY AND EF FICIENCY OF THE MACHINES TO ENHANCE THE ACCURACY LEVEL OF MACHINES IN CONTROLLING THE MOVEMENT OF TRAINS. THE ASSESSEE FURTHER SUBMITTED THAT ITS R&D FACILITY HAS BEEN APPROVED BY THE COMPETENT AUTHORITY UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT AFTER SCRUTINIZING THOR OUGHLY ALL THE DETAILS FILED BY THE ASSESSEE. THE COMPETENT AUTHORITY HAS APPROVED THE FACILITY AND ALSO APPROVED THE TOTAL EXPENDITURE INCURRED TO WARDS RESEARCH AND DEVELOPMENT. THEREFORE THE A.O. WAS NOT CORRECT I N HOLDING THAT THE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 11 ITEMS MANUFACTURED BY THE ASSESSEE ARE LISTED IN TH E ELEVENTH SCHEDULE ACCORDINGLY NOT ELIGIBLE FOR WEIGHTED DEDUCTION U/ S 35(2AB) OF THE ACT. 10. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. DISALLOWED WEIGHTED DEDUCTION CLAIMED BY THE A SSESSEE UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT FOR THE R EASON THAT THE ITEMS MANUFACTURED BY THE ASSESSEE ARE OFFICE MACHINES AN D APPARATUS LISTED IN ELEVENTH SCHEDULE. THE A.O. WAS OF THE OPINION THAT GOODS MANUFACTURED BY THE ASSESSEE ARE NOTHING BUT OFFICE MACHINES AND APPARATUS SUCH AS TYPE WRITERS CALCULATING MACHIN ES CASH REGISTERING MACHINES CHEQUE WRITING MACHINES INTERCOM MACHINE S AND TELE PRINTERS. THE A.O. FURTHER WAS OF THE OPINION THAT THE OFFICE MACHINES AND APPARATUS INCLUDE ALL MACHINES AND APPARATUS US ED IN OFFICES SHOPS FACTORIES RAILWAY STATIONS ETC. ACCORDING TO THE A.O. THESE ITEMS ARE PRIMARILY A DATA PROCESSING ITEMS INSTALL ED IN THE RAILWAY STATIONS TO STORE THE DATE RELATED TO MOVEMENT OF T RAINS. THE A.O. FURTHER WAS OF THE OPINION THAT JUST BECAUSE THE R& D FACILITY IS APPROVED BY THE PRESCRIBED AUTHORITY THE DEDUCTIONS U/S 35( 2AB) OF THE ACT CANNOT BE ALLOWED. THE A.O. IS REQUIRED TO ENQUIRE THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE AND AFTER SATISFIED WITH THE EXPLANATIONS OFFERED BY THE ASSESSEE THAT THE GOODS MANUFACTURED BY THE ASSESSEE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 12 ARE NOT IN THE NATURE OF OFFICE MACHINES AND APPARA TUS AS LISTED IN ELEVENTH SCHEDULE. THEREFORE OPINED THAT JUST BEC AUSE THE R&D FACILITY IS APPROVED BY THE COMPETENT AUTHORITY DEDUCTIONS CANNOT BE ALLOWED UNLESS THE ASSESSEE SATISFIES THE CONDITIONS PRESCR IBED UNDER THE RELEVANT PROVISIONS TO THE SATISFACTION OF THE A.O. 11. IT IS THE CONTENTION OF THE ASSESSEE THAT THE G OODS MANUFACTURED BY IT ARE NOT MERE OFFICE MACHINES OR APPARATUS LIS TED IN ELEVENTH SCHEDULE. THE ASSESSEE FURTHER CONTENDED THAT THE GOODS MANUFACTURED BY IT ARE SPECIALLY DESIGNED FOR INDIAN RAILWAYS TO MONITOR SAFE MOVEMENT OF TRAINS AND ALSO DISPLAY OF ARRIVAL AND DEPARTURE DETAILS OF THE TRAINS. IT IS FURTHER CONTENDED THAT ITS FACIL ITY IS APPROVED BY THE COMPETENT AUTHORITY I.E. DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH MINISTRY OF SCIENCE AND TECHNOLOGY GOVER NMENT OF INDIA. ONCE THE R&D FACILITY IS APPROVED BY THE COMPETENT AUTHORITY THE A.O. HAS NO AUTHORITY TO QUESTION THE ALLOWABILITY OR OT HERWISE OF THE EXPENDITURE UNLESS HE REFERRED THE MATTER TO THE C OMPETENT AUTHORITY IN CASE OF ANY CLARIFICATION REQUIRED IN THIS REGAR D. THE A.O. DID NOT FOLLOWED THE DUE PROCEDURE UNDER THE RULES SIMPLY DISALLOWED THE CLAIM MADE BY THE ASSESSEE FOR THE REASON THAT THE GOODS MANUFACTURED BY THE ASSESSEE ARE LISTED IN ELEVENTH SCHEDULE. ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 13 12. THE ONLY QUESTION CAME UP FOR OUR CONSIDERATION IS WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE THE GOODS MANU FACTURED BY THE ASSESSEE ARE MERE OFFICE MACHINES OR APPARATUS WHIC H ARE LISTED IN ELEVENTH SCHEDULE ITEM NO.22 OR AN ELECTRONIC EQUIP MENTS ELIGIBLE FOR CLAIMING DEDUCTION U/S 35(2AB) OF THE ACT. BEFORE WE GO INTO THE FACTS OF THE PRESENT CASE LET US UNDERSTAND THE PROVISIO NS OF SECTION 35(2AB) OF THE ACT. AS PER THE PROVISIONS OF SECTION 35(2A B)(1) OF THE ACT WHERE A COMPANY ENGAGED IN THE BUSINESS OF BIO TECHNOLOGY OR ANY BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING NOT BEING AN ARTICLE OR THING SPECIFIED IN THE LIST OF THE ELEVENTH SCHEDUL E INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPEN DITURE) IN THE NATURE OF COST OF ANY LAND OR BUILDING ON IN HOUSE RESEAR CH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY T HEN THERE SHALL BE ALLOWED A DEDUCTION OF A SUM EQUAL TO TWO TIMES OF THE EXPENDITURE SO INCURRED. A PLAIN READING OF SECTION 35(2AB)(1) OF THE ACT MAKES IT CLEAR THAT TO BE ELIGIBLE TO CLAIM DEDUCTION UNDER THE SAID PROVISION THE ASSESSEE SHOULD BE A COMPANY AND IT SHOULD BE ENGAG ED IN RESEARCH AND DEVELOPMENT FACILITY AND TO INCUR EXPENDITURE T OWARDS SUCH FACILITY AND THE ASSESSEE SHOULD BE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING EXCEPT THOSE SP ECIFIED IN THE ELEVENTH SCHEDULE AND FINALLY THE R&D FACILITY HAS TO BE APP ROVED BY THE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 14 PRESCRIBED AUTHORITY. ADMITTEDLY ASSESSEE IS A COM PANY WHICH IS ENGAGED IN MANUFACTURE OF ELECTRONIC DISPLAY BOARDS DATA LOGGERS AND ELECTRONIC SYSTEMS SUPPLIED TO INDIAN RAILWAYS. TH E R&D FACILITY OWNED BY THE ASSESSEE HAS BEEN APPROVED BY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH MINISTRY OF SCIENCE AND TECHNO LOGY GOVERNMENT OF INDIA. THE ASSESSEE HAS INCURRED AN AMOUNT OF RS.1 85 88 745/- TOWARDS REVENUE EXPENDITURE ON R&D AND A SUM OF RS. 25 72 566/- TOWARDS ELIGIBLE CAPITAL EXPENDITURE ON R&D. ALL TH ESE FACTS WERE NOT DISPUTED BY THE A.O. THE ONLY DISPUTE IS WITH REGA RD TO GOODS MANUFACTURED BY THE ASSESSEE. ACCORDING TO THE A.O . THE GOODS MANUFACTURED BY THE ASSESSEE ARE NOTHING BUT OFFICE MACHINES AND APPARATUS AS LISTED IN ELEVENTH SCHEDULE. THEREFOR E THE A.O. OPINED THAT DESPITE THE R&D FACILITY IS APPROVED BY THE CO MPETENT AUTHORITY BECAUSE OF GOODS MANUFACTURED BY THE ASSESSEE THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 35(2AB) OF THE ACT. 13. THE ASSESSEE IS INVOLVED IN THE BUSINESS OF MAN UFACTURE OF VARIOUS ELECTRONIC MOVING DISPLAY BOARDS AND SUPPLIES TO IN DIAN RAILWAYS. THE ITEMS MANUFACTURED BY THE ASSESSEE COMPANY ARE USED BY INDIAN RAILWAYS MAINLY USED FOR SMOOTH OPERATION AND SAFE RUNNING OF TRAINS. THE OTHER ITEMS SUPPLIED BY THE ASSESSEE COMPANY TO INDIAN RAILWAYS ARE TRACK MONITORING WATER LEVEL MONITORING SYSTEM TRAIN INFORMATION ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 15 SYSTEM DATA LOGGERS WRONG OPERATION INDICATION SY STEM AND RRI TESTS ETC. THE ASSESSEE HAS SUBMITTED DETAILED WRITE UP OF ITEMS MANUFACTURED AND SUPPLIED TO THE INDIAN RAILWAYS. ACCORDING TO THE ASSESSEE THESE ITEMS ARE SPECIALLY DESIGNED FOR IN DIAN RAILWAYS AS PER THE SPECIFICATIONS GIVEN BY THE RESEARCH DESIGNS AN D STANDARD ORGANIZATION (RDSO) OF THE INDIAN RAILWAYS WHICH W ILL DESIGN THE SPECIFICATION REQUIRED FOR CERTAIN UNITS TO BE INST ALLED AT VARIOUS RAILWAY STATIONS WHICH ARE ASSISTED IN CONTROLLING THE MOVE MENT OF RAILWAYS. ACCORDING TO THE ASSESSEE THE DATA LOGGERS PROVIDE S STUDY OF VARIOUS DIGITAL OPERATIONS WHETHER THE SIGNAL IS ON OR OFF THE RELAY IS UP OR DOWN THE FUSE IS INTACT. FURTHER DATA LOGGERS PRO VIDE THE STUDY OF VOLTAGE SUCH AS THE TRACK CIRCUIT VOLTAGE AC VOLTA GE DC VOLTAGE OR HIGH FREQUENCY AXLE CHANNEL VOLTAGE WITH ACCURACY. THE ASSESSEE INDIGENOUSLY DEVELOPED MICRO PROCESSOR BASED DATA L OGGER SYSTEM WITH VARIOUS APPLICATION SOFTWARES FOR RAILWAY SIGNALING ETC. AND THIS DATA LOGGER IS SIMILAR TO AIRCRAFT BLACK BOX. THE DATA LOGGERS RECORDS EVERY EVENT HAPPENING IN THE RAILWAYS I.E. OPERATING SUI TS OF ALL THESE LOG TRACKS POINTS SIGNALS ETC. READS THE INFORMATIO N TO CENTRAL PLACE VIA VARIOUS TYPES OF INDICATION INTERVENTION LOCK WIRE OR WIRELESS AND THROUGH DIFFERENT INTERLOCK METHODS AND AT CENTRAL PLACE L OCATED IN THE RAILWAY STATION ITSELF DIFFERENT APPLICATION SOFTWARES ARE PROVIDED TO PERFORM REAL ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 16 TIME ANALYSIS TO ONLY RAILWAY PERSONNEL RECORDING F AILURES HAPPENING IN THE RAILWAYS EQUIPMENTS STATES REAL TIME SIMULATI ON ETC. FOR ENABLING CORRECTIONS INDEED. THIS HAS TREMENDOUSLY IMPROVED SAFETY RELIABILITY AND PUNCTUALITY IN RAILWAYS THEREFORE THE ITEMS M ANUFACTURED BY THE ASSESSEE CANNOT BE CONSIDERED AS MERE OFFICE MACHIN ES AND APPARATUS AS DEFINED UNDER ELEVENTH SCHEDULE. THEREFORE WE ARE OF THE VIEW THAT THE ITEMS MANUFACTURED BY THE ASSESSEE ARE NOT A ME RE OFFICE MACHINES OR APPARATUS SUCH AS TYPE WRITERS CALCULATING MACH INES CASH REGISTERING MACHINES CHEQUE WRITING MACHINES INTERCOM MACHINE S AND TELE PRINTERS. THOUGH THE EXPLANATIONS PROVIDED TO ELE VENTH SCHEDULE DEFINES OFFICE MACHINES AND APPARATUS INCLUDES ALL MACHINES AND APPARATUS USED IN OFFICE ESTABLISHMENTS FACTORIES WORKSHOPS EDUCATIONAL INSTITUTIONS RAILWAY STATIONS FOR DOIN G OFFICE WORK AND FOR DATA PROCESSING THE ITEMS MANUFACTURED BY THE ASSE SSEE CANNOT BE EQUATED WITH MERE DATA PROCESSING MACHINES INSTALLE D IN OFFICES OR RAILWAY STATIONS. THE ITEMS MANUFACTURED BY THE AS SESSEE ARE SPECIALLY DESIGNED AS PER THE SPECIFICATION PROVIDED BY INDIA N RAILWAYS RESEARCH DESIGN AND STANDARD ORGANISATION TO SUIT THE NEEDS OF THE RAILWAY STATIONS TO CONTROL THE MOVEMENT OF RAILWAYS AND AL SO MONITOR SAFE MOVEMENT OF TRAINS. IN OUR CONSIDERED VIEW THE IT EMS MANUFACTURED BY THE ASSESSEE ARE SPECIALIZED ELECTRONIC EQUIPMENTS WHICH NEEDS ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 17 CONTINUOUS IMPROVEMENT BY WAY OF RESEARCH AND DEVEL OPMENT. THE ASSESSEE IN HIS BUSINESS HAS ESTABLISHED A RESEARCH AND DEVELOPMENT FACILITY TO IMPROVE THE QUALITY AND EFFICIENCY OF G OODS MANUFACTURED. THE R&D FACILITY OWNED BY THE ASSESSEE HAS BEEN APP ROVED BY THE COMPETENT AUTHORITY AFTER FULFILLING THE CONDITIONS PRESCRIBED UNDER THE PROVISIONS OF SECTION 35 (2AB) OF THE ACT. THEREFO RE THE A.O. WAS NOT CORRECT IN HOLDING THAT THE GOODS MANUFACTURED BY T HE ASSESSEE ARE MERE OFFICE MACHINES OR APPARATUS LISTED IN ELEVENT H SCHEDULE NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S 35(2AB) OF THE ACT. 14. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT TH E A.O. WAS ERRED IN OBSERVING THAT THE DSIR IS NOT THE COMPETENT AUTHOR ITY TO DECIDE WHETHER THE ASSESSEES CLAIM U/S 35(2AB) OF THE ACT IS CORRECT OR NOT. THE A.O. OBSERVED THAT SUCH ELIGIBILITY SHOULD BE DECIDED BY THE ASSESSING AUTHORITY AND THE ROLE OF THE DSIR IS ONL Y TO CERTIFY THE QUANTUM OF EXPENDITURE INCURRED BY THE ASSESSEE IN R&D WORK WHICH WAS NOT QUESTIONED. THE A.R. FURTHER SUBMITTED THA T THE A.O. WAS COMPLETELY ERRED IN OBSERVING THAT THE DSIR ROLE IS LIMITED TO CERTIFYING THE QUANTUM OF EXPENDITURE INCURRED TOWARDS R&D EXP ENDITURE AS AS PER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT AN D RULE 6(1)(B) OF THE INCOME TAX RULES 1962 PROVIDES THAT ANY ASSESSEE A PPLIED FOR APPROVAL OF ITS R&D FACILITY BEFORE THE SECRETARY DSIR GOV ERNMENT OF INDIA IN ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 18 FORM NO.3CK THE SECRETARY DSIR IF HE SATISFIED AB OUT THE ACTIVITIES OF THE ASSESSEE OF OTHER PARAMETERS PASSES AN ORDER OF APPROVAL IN FORM NO.3CM. AFTER ACCORDING SANCTION OF APPROVAL THE SECRETARY DSIR SENDS A REPORT TO THE DIRECTOR GENERAL INCOME TAX (EXEMPTIONS) IN FORM NO.3CM WITHIN 60 DAYS OF GRANTING APPROVAL. WH EN DSIR PASSES THE ORDER OF APPROVAL IT SCRUTINIZES THE APPLICATI ON FILED BY THE ASSESSEE WITH NECESSARY DETAILS BEFORE GRANTING APPROVAL AFT ER SATISFIED WITH THE CONDITIONS STIPULATED UNDER THE PROVISIONS OF SECTI ON 35(2AB) OF THE ACT. BEFORE GRANTING THE APPROVAL DSIR LOOKS INTO VARIO US ASPECTS INCLUDING THE PRODUCTS MANUFACTURED BY THE ASSESSEE TO SATISF Y THE CONDITIONS PRESCRIBED IN SECTION 35(2AB)(1) OF THE ACT. THERE FORE THE A.O. WAS COMPLETELY ERRED IN OBSERVING THAT THE ROLE OF DSIR IS LIMITED TO CERTIFYING THE QUANTUM OF EXPENDITURE INCURRED TOWA RDS RESEARCH AND DEVELOPMENT BUT NOT TO APPROVE THE GOODS MANUFACTU RED BY THE ASSESSEE. 15. HAVING HEARD BOTH THE PARTIES WE FIND FORCE IN THE ARGUMENTS OF THE LD. A.R. FOR THE ASSESSEE FOR THE REASON THAT T HE PROVISIONS OF SECTION 35(2AB) OF THE ACT WITH RELEVANT RULES MAK ES IT MANDATORY FOR THE ASSESSEE COMPANY TO FILE ITS APPLICATION FOR AP PROVAL OF ITS IN HOUSE R&D BEFORE THE SECRETARY DSIR GOVERNMENT OF INDIA . THE APPLICANT COMPANY SHOULD ALSO SUBMIT AN UNDERTAKING AS PER PA RA-C OF FORM ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 19 NO.3CK TO MAINTAIN SEPARATE ACCOUNTS FOR EACH R&D C ENTRE APPROVED U/S 35(2AB) OF THE ACT BY THE PRESCRIBED AUTHORITY AND TO GET ACCOUNTS DULY AUDITED EVERY YEAR BY AN AUDITOR AS DEFINED IN SUB SECTION(2) OF SECTION 288 OF THE ACT. THE COMPANY SHOULD ENTER INTO AN A GREEMENT WITH THE PRESCRIBED AUTHORITY (SECRETARY DSIR) FOR COOPERAT ION IN SUCH RESEARCH AND DEVELOPMENT FACILITY AND FOR AUDIT OF THE ACCOU NTS MAINTAINED FOR THAT FACILITY AS PER FORM GIVEN IN PARA-B OF FORM 3 CK. THE SECRETARY DSIR AFTER SATISFIED WITH THE DETAILS FURNISHED BY THE ASSESSEE AND ALSO AFTER COMPLIED WITH THE CONDITIONS PRESCRIBED UNDER THE PROVISIONS OF SECTION 35(2AB) OF THE ACT AND RULES THERE UNDER PA SS AN ORDER OF APPROVAL IN FORM NO.3CM BY DULY INTIMATING SUCH APP ROVAL TO THE DIRECTOR GENERAL OF INCOME TAX (EXEMPTION) IN FORM NO.3CL WITHIN 60 DAYS OF GRANTING APPROVAL. ONCE THE R&D FACILITY IS APPROVED BY THE COMPETENT AUTHORITY AND ASSESSEE HAS COMPLIED WITH THE PRESCRIBED RULES THE A.O. IS BOUND TO ALLOW THE DEDUCTIONS CL AIMED U/S 35(2AB) OF THE ACT IF HE IS SATISFIED THAT THE ASSESSEES FAC ILITY IS APPROVED BY THE COMPETENT AUTHORITY. IN CASE THE A.O. IS HAVING AN Y DOUBT WITH REGARD TO THE GOODS MANUFACTURED BY THE ASSESSEE OR EXPEND ITURE CLAIMED THE A.O. IS BOUND TO REFER THE MATTER BACK TO THE COMPE TENT AUTHORITY THROUGH APPROPRIATE AUTHORITY I.E. THE CENTRAL BOAR D OF DIRECT TAXES (CBDT) AND SEEK CLARIFICATIONS. THUS IT WOULD EME RGE FROM ABOVE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 20 ANALYSIS THAT NEITHER THE A.O. NOR THE BOARD WAS CO MPETENT TO TAKE ANY DECISION OF ANY SUCH CONTROVERSY RELATING TO REPORT AND APPROVAL GRANTED BY THE PRESCRIBED AUTHORITY AS IT INVOLVED EXPERT V IEW OR OPINION. IT WAS PRESCRIBED AUTHORITY ALONE WHICH WOULD BE COMPETENT TO TAKE DECISION WITH REGARD TO THE CORRECTNESS OR OTHERWISE AND ITS ORDER OF APPROVAL GRANTED IN FORM NO.3CL AS PRESCRIBED U/S 35(2AB) OF THE ACT READ WITH RULE 7A OF THE INCOME TAX RULES 1962. IN THE PRES ENT CASE ON HAND ON PERUSAL OF THE FACTS AVAILABLE ON RECORD WE FIND T HAT THE A.O. WITHOUT FOLLOWING THE PROCEDURE LAID DOWN UNDER RULES SIMP LY DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE BY HOLDING THAT THE GOODS MANUFACTURED BY THE ASSESSEE ARE MERE OFFICE MACHIN ES AND APPARATUS LISTED IN ELEVENTH SCHEDULE. THEREFORE WE ARE OF THE VIEW THAT THE A.O. IS NOT CORRECT IN DISALLOWING THE CLAIM MADE BY THE ASSESSEE U/S 35(2AB) OF THE ACT. 16. THE NEXT ALLEGATION OF THE A.O. IS THAT THE PRE SCRIBED AUTHORITY DID NOT SUBMIT REPORT IN FORM NO.3CL TO THE DIRECTOR GE NERAL INCOME TAX (EXEMPTIONS) WITHIN 60 DAYS OF GRANTING APPROVAL AS REQUIRED UNDER RULE 6(7A)(B) OF THE INCOME TAX RULES 1967 CONSEQUENTL Y THE ASSESSEE IS INELIGIBLE FOR CLAIMING EXEMPTION U/S 35(2AB) OF TH E ACT. THE A.O. FURTHER OBSERVED THAT THE PRESCRIBED AUTHORITY OUGH T TO HAVE SUBMITTED THE APPROVAL TO THE DIRECTOR GENERAL OF INCOME TAX WITHIN 60 DAYS ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 21 HOWEVER THE SAID APPROVAL HAS BEEN SUBMITTED TO TH E DIRECTOR GENERAL BEYOND THE TIME SPECIFIED UNDER RULE THEREFORE TH E ASSESSEE IS INELIGIBLE FOR EXEMPTION. WE DO NOT FIND ANY MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT IT IS FOR THE COMP ETENT AUTHORITY TO SEND THE APPROVAL TO THE DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS) WITHIN SUCH TIME AS PRESCRIBED UNDER THE RULES. IN CASE S UCH APPROVAL IS NOT FORWARDED TO THE DIRECTOR GENERAL OF INCOME TAX (EX EMPTIONS) IT IS ONLY A TECHNICAL MISTAKE FOR WHICH THE ASSESSEE CANNOT B E PENALIZED. IN THE PRESENT CASE ON HAND THE ASSESSEE HAS FULFILLED TH E CONDITIONS PRESCRIBED UNDER THE PROVISIONS OF SECTION 35(2AB)( 1) OF THE ACT AND RULES THERE UNDER THEREFORE FOR A TECHNICAL BREACH THE A.O. CANNOT DISALLOW THE EXEMPTION CLAIMED U/S 35(2AB) OF THE A CT. 17. IT IS PERTINENT TO DISCUSS THE CASE LAW RELIED UPON BY THE ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE HI GH COURT OF KARNATAKA IN THE CASE OF TEJAS NETWORKS LTD. VS. D CIT (2015) 233 TAXMAN 426. THE HONBLE HIGH COURT OF KARNATAKA U NDER SIMILAR CIRCUMSTANCES HELD THAT THE A.O. HAD NO JURISDICTIO N TO SIT IN JUDGEMENT OVER REPORT SUBMITTED BY PRESCRIBED AUTHORITY IN FO RM NO.3CL AS REQUIRED U/S 35(2AB) OF THE ACT READ WITH RULE (7A)(B). THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREUNDER: ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 22 A PLAIN READING OF SECTION 35(2AB)(1) WOULD INDICA TE THAT WHERE A COMPANY IS ENGAGED IN THE BUSINESS OF BIOTECHNOLOGY OR ANY BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING NOT BEING AN ARTICLE OR THING SPECIFIED IN THE LIST OF THE ELEVENTH SCHEDUL E INCURS ANY EXPENDITURE ON 'SCIENTIFIC RESEARCH' (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEV ELOPMENT FACILITY 'AS APPROVED BY THE PRESCRIBED AUTHORITY ' SUCH ASSESSE E WOULD BE ENTITLED TO A DEDUCTION OF A SUM EQUAL TO ONE AND HALF TIMES OF THE EXPENDITURE SO INCURRED. THE WORD 'SCIENTIFIC RESEARCH' HAS BEEN D EFINED UNDER SUBSECTION (4) OF SECTION 43 OF THE ACT WHICH IS E XTRACTED SUPRA AND SAME WOULD INDICATE EXPENDITURE INCURRED IN SUCH SCIENTI FIC RESEARCH INCLUDES ALL EXPENDITURE INCURRED FOR THE PROSECUTION OR THE PRO VISION OF FACILITIES FOR THE PROSECUTION OF SUCH SCIENTIFIC RESEARCH. HOWEVE R IT DOES NOT INCLUDE EXPENDITURE INCURRED IN THE ACQUISITION OF RIGHTS I N OR ARISING OUT OF SCIENTIFIC RESEARCH. SUCH EXPENDITURE INCURRED SHOU LD BE APPROVED BY THE AUTHORITY PRESCRIBED UNDER SECTION 35(2AB) OF THE A CT READ WITH RULES FRAMED THEREUNDER. (PARA 8) READING OF SECTION 35 (3) OF THE ACT WOULD CLEARLY INDICATE THAT WHERE THE ASSESSING OFFICER DOES NOT ACCEPT THE CLAIM OF THE ASSESSEE MADE UNDER SECTION 35(2AB) HE HAS TO REFER THE MATTER TO THE BOARD WHICH INTURN WILL REFER THE QUESTION TO THE PRESCRIBED AUTHORITY . THE DECISION OF THE PRESCRIBED AUTHORITY WOULD BE FINAL AS COULD BE SEE N FROM CLAUSE (B) OF SUBSECTION (3) OF SECTION 35. THUS IT WOULD EMERGE FROM ABOVE ANALYSIS THAT NEITHER THE ASSESSING OFFICER NOR THE BOARD IS COMPETENT TO TAKE ANY DECISION ON ANY SUCH CONTROVERSY RELATING TO REPORT AND APPROVAL GRANTED BY 'PRESCRIBED AUTHORITY' AS IT INVOLVES EXPERT VIE W OR OPINION. THE CONTROVERSY ARISING OUT OF CERTIFICATE ISSUED BY TH E PRESCRIBED AUTHORITY IF ANY HAS TO BE REFERRED TO THE PRESCRIBED AUTHORITY BY THE BOARD ON SUCH DOUBT BEING RAISED BY ASSESSING OFFICER AND ALSO ON HIS REQUEST. IT IS THE PRESCRIBED AUTHORITY ALONE WHICH WOULD BE COMPETENT TO TAKE A DECISION WITH REGARD TO CORRECTNESS OR OTHERWISE OF ITS ORDE R OF APPROVAL GRANTED IN FORM NO. 3CL AS PRESCRIBED UNDER SECTION 35(2AB) OF THE ACT READ WITH RULE 7A OF THE RULES. (PARA 21) A PLAIN READING OF SECTION 35(2AB) WOULD CLEARLY IN DICATE THAT WHERE A COMPANY IS ENGAGED IN THE BUSINESS OF BIO-TECHNOLOG Y OR IN ANY BUSINESS OF MANUFACTURE OR PRODUCT/ON OF ANY ARTICLE OR THIN G NOT BEING AN ARTICLE OR THING SPECIFIED IN THE LIST OF THE ELEVENTH SCHE DULE INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPEN DITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) OR IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY THEN THEY SHALL BE AL/OWED A DEDUCTION OF A SUM EQUAL TO ONE AND A HALF TIMES OF THE EXPENDITURE SO INCURRED. THE WORD USED 'SHALL' IN THE ABOVE SAID P ROVISION WOULD ORDINARILY MEAN THAT IT SHOULD BE UNDERSTOOD IN THE CONTEXT IN WHICH IT IS USED AND THERE CANNOT BE DEPARTURE IN THIS REGARD. THE SAID PROVISION WOULD ALSO INDICATE THAT SUCH EXPENDITURE AS APPROVED BY THE P RESCRIBED AUTHORITY ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 23 WOULD BE ENTITLED FOR BEING ALLOWED AS A WEIGHTED D EDUCTION THERE BEING NO DISPUTE TO THE FACT THAT DSIR BEING THE PRESCRIBE D AUTHORITY IN THE INSTANT CASE HAD ISSUED THE REPORT IN FORM NO. 3CL - ANNEXURE - M CERTIFYING THE TOTAL R&D EXPENDITURE (EXCLUDING LAN D AND BUILDINGS) AS PRESCRIBED UNDER SECTION 35(2A6) FOR A SUM OF RS. 4 601.9 LAKHS AS AGAINST THE CLAIM OF RS. 5 957 LAKHS MADE BY THE AS SESSEE IN THE RETURN OF INCOME AND AS SUCH NEITHER THE SECOND RESPONDENT N OR FIRST RESPONDENT COULD HAVE SAT IN JUDGMENT OVER THE SAID CERTIFICAT E ISSUED BY THE PRESCRIBED AUTHORITY. IN OTHER WORDS WHEN THE PRES CRIBED AUTHORITY HAD CERTIFIED THE EXTENT OF EXPENDITURE WHICH WOULD BE ALLOWABLE THE ASSESSING OFFICER COULD NOT HAVE SAT IN APPEAL OVER SUCH CERTIFICATION MADE BY THE PRESCRIBED AUTHORITY. THE ALLOWABILITY OR OT HERWISE OF SUCH EXPENDITURE CANNOT BE THE SUBJECT MATTER OF SCRUTIN Y BY THE ASSESSING OFFICER. IT WOULD ALSO BE REQUIRED TO BE NOTICED THA T THE ASSESSING OFFICER WOULD BE OUT OF BOUNDS TO EXAMINE AS TO WHETHER SUC H EXPENDITURE AS CERTIFIED BY THE PRESCRIBED AUTHORITY CAN BE ALLOWE D OR DISALLOWED UNDER SECTION 35 OF THE ACT. IN OTHER WORDS THE ASSESSING OFFICER IS PRECLUDED FROM EXAMINING THE CORRECTNESS OR OTHERWISE OF THE CERTIFICATE ISSUED BY THE PRESCRIBED AUTHORITY ON THE GROUND THAT IT IS E ITHER BEING CONTRARY TO FACTS OR CONTRARY TO THE EXPRESS PROVISIONS OF THE ACT. IT WOULD NOT BE OUT OF CONTEXT TO STATE THAT WHEN ASSESSEE FILES THE RE PORT ISSUED BY THE PRESCRIBED AUTHORITY AS INDICATED UNDER SECTION 35 (2AB) BEFORE THE JURISDICTIONAL ASSESSING OFFICER AND SEEKS FOR ALLO WABILITY OF SUCH EXPENDITURE THE ASSESSING OFFICER WOULD BE EXCEEDI NG IN HIS JURISDICTION IF HE WERE TO UNDERTAKE THE EXERCISE OF EXAMINING A S TO WHETHER THE CERTIFICATE ISSUED BY THE PRESCRIBED AUTHORITY IS W ITHIN THE PARAMETERS OF STATUTORY PROVISIONS OF THE ACT OR OTHERWISE. KEEPI NG IN MIND THAT SUCH CONTINGENCY MAY ARISE PARLIAMENT HAS INCORPORATED SUB-SECTION (3) TO SECTION 35 OF THE ACT WHICH WOULD BE A COMPLETE ANS WER TO SUCH SITUATIONS. THUS IF ANY QUESTION ARISES AS TO WHAT EXTENT ANY ACTIVITY CONSTITUTES OR CONSTITUTED OR AN ASSET IS OR WAS BE ING USED FOR SCIENTIFIC RESEARCH THEN THE ASSESSING OFFICER WOULD BE REQUI RED TO REFER SUCH QUESTION TO THE BOARD FOR BEING REFERRED TO THE PRE SCRIBED AUTHORITY. THE DECISION OF THE PRESCRIBED AUTHORITY IN THIS REGARD WOULD BE FINAL INASMUCH AS THE CERTIFICATION OF SUCH EXPENDITURE IS BEING EXAMINED BY AN EXPERT BODY AND UNDISPUTEDLY SUCH EXERCISE HAS BEE N OUTSOURCED BY THE REVENUE UNDER THE ACT ITSELF SINCE THE PRESCRIBED AUTHORITY BEING POSSESSED OF REQUISITE EXPERTISE IT WOULD BE IN A BETTER POSITION TO CERTIFY AS TO WHETHER SUCH EXPENDITURE CLAIMED BY THE ASSES SEE UNDER SECTION 35(2AB) WOULD FALL WITHIN THE SAID PROVISION OR OUT SIDE. THIS EXERCISE OF EXAMINING THE CORRECTNESS OF THE CERTIFICATE ISSUED BY THE PRESCRIBED AUTHORITY IS NOT AVAILABLE TO THE ASSESSING OFFICER AS COULD BE SEEN FROM SCHEME OF SECTION 35 OF THE ACT. IT IS IN THIS BACKGROUND SUB-SECTION (4) OF SECTION 43 WILL HAVE TO BE CONSIDERED WHICH DEFINES AS TO WHAT ACTIVITIES WOU LD CONSTITUTE 'SCIENTIFIC RESEARCH' AS INDICATED UNDER THE SAID SECTION NAMEL Y SECTION 43(4). AS TO WHETHER ANY EXPENDITURE INCURRED IN THE ACQUISITION OF RIGHTS IN OR ARISING ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 24 OUT OF SCIENTIFIC RESEARCH AS INDICATED IN CLAUSE ( II) OF SUB-SECTION (4) OF SECTION 43 IS AN ISSUE WHICH REQUIRES TO BE EXAMINED BY THE PRESCRIBED AUTHORITY ITSELF AND IT WOULD NOT BE IN THE DOMAIN OF THE ASSESSING AUTHORITY TO UNDERTAKE SUCH AN EXERCISE. WHEN SECTI ON 35(2AB) SECTION 35(3) AND SECTION 43(4) OF THE ACT ARE READ HARMONI OUSLY THE IRRESISTIBLE CONCLUSION THAT HAS BE DRAWN WOULD BE THAT ASSESSIN G OFFICER CANNOT SIT IN JUDGMENT OVER THE REPORT SUBMITTED BY THE PRESCRIBE D AUTHORITY IN FORM NO. 3CL. (PARA28) IN VIEW OF THE FINDING THAT ASSESSING OFFICER - FIRS T RESPONDENT HAD NO JURISDICTION TO SIT IN JUDGMENT OVER THE REPORT SUB MITTED BY THE PRESCRIBED AUTHORITY IN FORM NO. 3CL AS REQUIRED UNDER SECTION 35(2AB) OF THE ACT READ WITH RULE (7A)(B) OF INCOME TAX RULES 1961 IT HAS TO BE HELD THAT THE ISSUE OF ENTERTAINING THE WRIT PETITION ON THE GROUND OF ALTERNATE REMEDY WOULD RECEDE TO BACKGROUND AND IT HAS TO BE HELD THAT PRESENT WRIT PETITION WOULD BE MAINTAINABLE IN THE FACTS OB TAINED IN THE PRESENT CASE AS DISCUSSED HEREIN ABOVE AND WRIT PETITION CA NNOT BE DISMISSED ON THE GROUND OF PETITIONER HAVING ALTERNATE REMEDY OF APPEAL. (PARA30) 18. THE ASSESSEE RELIED UPON THE DECISION OF ITAT BOMBAY IN THE CASE OF DCIT VS. FAMY CARE LTD. (2015) 67 SOT 85. THE C OORDINATE BENCH OF THIS TRIBUNAL UNDER SIMILAR CIRCUMSTANCES HELD THA T ONCE FACILITY WAS APPROVED ENTIRE EXPENDITURE SO INCURRED ON DEVELOP MENT AND RESEARCH HAD TO BE ALLOWED FOR SUCH WEIGHTED DEDUCTION U/S 3 5(2AB) OF THE ACT AND THUS IT WOULD BE SUFFICIENT TO HELD THAT ASSESS EE HAS FULFILLED THE CONDITIONS AS LAID DOWN IN SECTION. THE RELEVANT P ORTION OF THE ORDER IS EXTRACTED HEREUNDER: IT WAS NOTED THAT FOR GRANTING APPROVAL U/S 35(2AB ) OF THE ACT THE ASSESSEE MADE APPLICATION WITH THE PRESCRIBED AUTH ORITY IN ACCORDANCE WITH SECTION 35(2A8)(3) R. W RULE 6(4) OF THE INCOME -TAX RULES 1962 ON 11/12/2007. THE PRESCRIBED AUTHORITY APPROVED/GRANT ED IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY U/S 35(2AB) OF THE ACT ON 04/032009 FOR A PERIOD FROM OCTOBER 19 2007 TO 31ST MARCH 2010 IN FORM NO . 3CM IN ACCORDANCE WITH RULE 6(5A) OF THE RULES. THIS APPRO VAL WAS PRODUCED BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROC EEDINGS I.E. BEFORE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 25 FRAMING THE ASSESSMENT ON 30/12/2011. THE PRESCRIBE D AUTHORITY SENT FORM NO.3CL TO THE INCOME-TAX DEPARTMENT ON 22ND NO VEMBER 2010 (A. Y. 2008-09) IN ACCORDANCE WITH SECTION 35(2AB)( 4) READ WITH RULE 6(7A)(B) OF THE RULES. AS THE APPROVAL OF THE ENTIR E PERIOD WAS GIVEN ONCE I.E. BY WAY OF FORM NO. 3M THUS IN OUR VIEW THE ASSESSEE COMPLIED WITH THE CONDITIONS FOR CLAIM OF DEDUCTION AS REQUIRED U /S 35(2AB) OF THE ACT. IF THE AFORESAID SECTION WAS ANALYZED THEN THE DEDUC TION SHALL BE A//OWED OF A SUM EQUAL TO TWO TIMES OF THE EXPENDITURE SO I NCURRED AND THE PRESCRIBED AUTHORITY IS TO SUBMIT ITS REPORT OF SUC H APPROVAL/FACILITY TO THE DIRECTOR GENERAL ON A PRESCRIBED FORM WITHIN SPECIF IED TIME MEANING THEREBY THE AUTHORITY CONCERNED HAD TO SUBMIT THE REPORT TO THE DIRECTOR GENERAL. HOWEVER IF THE TOTALITY OF FACTS ARE ANAL YZED AS MENTIONED EARLIER THE ASSESSEE MADE APPLICATION FOR SUCH APP ROVAL ON 11/12/2007 WITH THE PRESCRIBED AUTHORITY AND SUCH APPROVAL WAS GRANTED ON 04/03/2009 THEREFORE THE ASSESSEE CANNOT BE DENIE D THE CLAIMED DEDUCTION U/S 35(2AB) OF THE ACT MERELY ON THE GROU ND THAT THE PRESCRIBED AUTHORITY DOES NOT SUBMIT FORM NO. 3CL I N TIME TO THE INCOME- TAX DEPARTMENT. THE ASSESSEE CANNOT BE PENALIZED FO R THE FAULT IF ANY OF THE DEPARTMENT. THE ASSESSING OFFICER CANNOT BE EXP ECTED TO BE TOO TECHNICAL RATHER WAS TO TAKE PRACTICAL APPROACH UND ER THE FACTS NARRATED HEREINABOVE BECAUSE IT WAS BEYOND THE CONTROL OF THE ASSESSEE TO DIRECT THE AUTHORITY TO SUBMIT THE PRESCRIBED FORM ON FORM NO.3CL TO THE DEPARTMENT. SECTION 35(2AB) OF THE ACT NOWHERE SUG GEST THAT THE DATE OF APPROVAL OF RESEARCH AND DEVELOPMENT FACILITY WOULD BE CUT OFF DATE FOR ELIGIBILITY OF WEIGHTED DEDUCTION UNDER THIS SECTIO N ON EXPENSES INCURRED FROM THAT DATE ONWARDS; ONCE FACILITY WAS APPROVED ENTIRE EXPENDITURE SO INCURRED ON DEVELOPMENT OF RESEARCH AND DEVELOPMENT FACILITY HAD TO BE ALLOWED FOR SUCH WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT AND THUS IT WOULD BE SUFFICIENT TO HOLD THAT ASSESSEE HAD FULFI LLED THE CONDITIONS AS LAID DOWN IN THE SECTION. EVEN OTHERWISE THE ID. C OMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO VER IFY THE FORM NO.3CM AND 3CL AND THEN ALLOWED WEIGHTED DEDUCTION AS CLA IMED BY THE ASSESSEE. TRIBUNAL HAD FOUND NO INFIRMITY IN THE CO NCLUSION AND THE DIRECTION IN THE IMPUGNED ORDER. IT WAS AFFIRMED. FI NALLY THE APPEAL OF THE REVENUE WAS DISMISSED. 19. THE ASSESSEE RELIED UPON THE DECISION OF HONBL E HIGH COURT OF GUJARAT IN THE CASE OF DCIT VS. MASTEK LTD. (2013) 263 CTR 671. THE HONBLE HIGH COURT UNDER SIMILAR CIRCUMSTANCES HEL D THAT IF AN ASSESSEE PUTS FORTH A CLAIM OF DEDUCTION U/S 35(1) OF THE AC T FOR EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH AND IF A.O. IS NOT INCLINED TO ACCEPT SUCH A ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 26 CLAIM HE MAY SEEK OPINION OF PRESCRIBED AUTHORITY AND THE DECISION OF PRESCRIBED AUTHORITY WOULD GOVERN PARTIES. THE A.O . NOT HAVING OBTAINED DECISION OF PRESCRIBED AUTHORITY THOUGH A SERIOUS QUESTION IN PRESENT CASE HAD ARISEN WAS NOT JUSTIFIED IN REJECT ING ASSESSEES CLAIM FOR DEDUCTION OF EXPENDITURE INCURRED FOR SCIENTIFI C RESEARCH. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: THE TERM SCIENTIFIC RESEARCH IN THE CONTEXT OF THE DEDUCTION ALLOWABLE UNDER SECTION 35(1) OF THE ACT WOULD INCLUDE WIDE VARIETY OF ACTIVITIES. WHAT IS TO BE ASCERTAINED IS WHETHER ANY SCIENTIFIC RESEARCH W AS UNDERTAKEN AND NOT WHETHER SUCH SCIENTIFIC RESEARCH RESULTED INTO THE ULTIMATE AIM FOR WHICH SUCH RESEARCH WAS UNDERTAKEN. WHAT THE LEGISLATURE DESIR ED TO ENCOURAGE BY GRANTING DEDUCTION UNDER SECTION 35(1) OF THE ACT W AS A SCIENTIFIC RESEARCH AND NOT NECESSARILY ONLY THE SUCCESSFUL SCIENTIFIC RESEARCH UNDERTAKEN BY AN ASSESSEE. (PARA 25) TRIBUNAL WITHOUT DISCUSSING FULL MATERIALS ON RECOR D CAME TO SUCH CONCLUSION WHICH IN OUR OPINION OUGHT NOT TO HAVE BEEN DONE. THESE ARE MATTERS OF EXTREME SCIENTIFIC COMPLEXITIES. WHAT WAS THE NATUR E OF THE RESEARCH UNDERTAKEN WHAT WAS THE IMPROVEMENT IN THE EXISTIN G SOFTWARE AIMED AT OR DESIRED WHETHER ULTIMATELY THE PRODUCT WHICH WAS L AUNCHED BY THE ASSESSEE AFTER UNDERTAKING SUCH SO CALLED SCIENTIFIC RESEARC H WAS A NEW PRODUCT SUBSTANTIALLY DIFFERENT FROM THE EXISTING ONE OR NO T WERE SOME OF THE ISSUES ON WHICH THE TRIBUNAL IN OUR HUMBLE OPINION WITHO UT BESTOWING SUFFICIENT ATTENTION RULED IN FAVOUR OF THE ASSESSEE. WE MAY C AUTION THAT SUCH ISSUES OF EXTREME SCIENTIFIC COMPLEXITIES SHOULD NOT BE DECI DED WITHOUT REFERRING TO THE FULL MATERIALS ON RECORD AND APPRECIATING THE C OMPLEXITIES OF THE ISSUE ON HAND. (PARA 27) SECTION 35(3) OF THE ACT AS NOTICED REQUIRES A REFE RENCE TO BE MADE BY THE BOARD TO THE PRESCRIBED AUTHORITY WHEN A QUESTION A RISES AS TO WHETHER AND IF SO TO WHAT EXTENT ANY ACTIVITY CONSTITUTES OR C ONSTITUTED OR ANY ASSET IS OR WAS BEING USED FOR SCIENTIFIC RESEARCH. THE DECISIO N OF THE PRESCRIBED AUTHORITY ON SUCH A QUESTION WOULD BE FINAL. IN OUR OPINION THEREFORE WHENEVER ANY SUCH QUESTION ARISES THE ASSESSING OF FICER CANNOT DECIDE THE ISSUE BUT MUST PLACE THE ISSUE BEFORE THE BOARD WHO IN TERMS OF SECTION 35(3) OF THE ACT WOULD REFER THE QUESTION TO THE P RESCRIBED AUTHORITY. THE DECISION OF THE PRESCRIBED AUTHORITY WOULD GOVERN T HE PARTIES. THEREFORE IF AN ASSESSEE PUTS FORTH A CLAIM OF DEDUCTION UNDER S ECTION 35(1) FOR ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 27 EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH AND IF THE ASSESSING OFFICER IS NOT INCLINED TO ACCEPT SUCH A CLAIM THE QUESTION CAN B E STATED TO HAVE ARISEN. IN SUCH A SITUATION THE ASSESSING OFFICER CANNOT TAKE A DECISION BUT MUST SEEK THE OPINION OF THE PRESCRIBED AUTHORITY WE MAY HAS TEN TO ADD THAT ONLY WHEN SUCH A QUESTION ARISES THAT THE REFERENCE WOUL D BE COMPETENT. (PARA 28) THE AO NOT HAVING OBTAINED SUCH A DECISION OF THE P RESCRIBED AUTHORITY THOUGH A SERIOUS QUESTION IN THE PRESENT CASE HAD A RISEN IN OUR OPINION WAS NOT JUSTIFIED IN REJECTING THE ASSESSEE'S CLAIM FOR DEDUCTION OF EXPENDITURE INCURRED FOR SCIENTIFIC RESEARCH. THE TRIBUNAL IN T HIS REGARD CAME TO A CORRECT CONCLUSION. (PARA30) TRIBUNAL ITSELF OUGHT NOT TO HAVE DECIDED THIS QUES TION WITHOUT THE OPINION OF THE PRESCRIBED AUTHORITY PARTICULARLY WITHOUT FULL DISCUSSION ON THE MATERIALS ON RECORD. THE QUESTION NO.B IS ANSWERED BY HOLDING THAT THE REFERENCE OUGHT TO HAVE BEEN SOUGHT BY THE REVENUE BEFORE THE BOARD TO THE PRESCRIBED AUTHORITY AND NOT HAVING DONE SO THE TRIBUNAL WAS JUSTIFIED IN REVERSING THE ORDERS OF THE REVENUE AUTHORITIES REJECTING THE ASS ESSEE'S CLAIM FOR DEDUCTION. 20. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE RATIOS OF DECISIONS DISC USSED ABOVE WE ARE OF THE VIEW THAT THE A.O. WAS ERRED IN DISALLOWING THE WEIGHTED DEDUCTION CLAIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SEC TION 35(2AB)(1) OF THE ACT DESPITE THE ASSESSEES R&D FACILITY WAS AP PROVED BY THE COMPETENT AUTHORITY. WE FURTHER WAS OF THE VIEW THA T THE GOODS MANUFACTURED BY THE ASSESSEE ARE NOT A MERE OFFICE MACHINES OR APPARATUS AS LISTED IN ELEVENTH SCHEDULE BUT THEY ARE SPECIALLY DESIGNED ELECTRONIC EQUIPMENTS MEANT FOR USE BY INDIAN RAILW AYS TO MONITOR SMOOTH MOVEMENT OF TRAINS. THE ASSESSEE HAS CATEGO RICALLY PROVED BY FILING NECESSARY EVIDENCES OF APPROVAL GRANTED BY T HE PRESCRIBED ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 28 AUTHORITY AND ALSO RETURNS FILED ANNUALLY TO THE PR ESCRIBED AUTHORITY TO JUSTIFY THE EXPENDITURE INCURRED TOWARDS R&D EXPEND ITURE. IN OUR CONSIDERED VIEW THE COMPETENT AUTHORITY HAS TO DEC IDE WHETHER A PARTICULAR EXPENDITURE IS ELIGIBLE FOR DEDUCTION U/ S 35(2AB) OF THE ACT OR NOT BUT NOT THE ASSESSING OFFICER. IN THE PRESENT CASE THE A.O. WITHOUT FOLLOWING THE DUE PROCEDURE LAID DOWN UNDER THE PRO VISIONS OF THE ACT AND RULES THERE UNDER SIMPLY DISALLOWED THE EXPEND ITURE CLAIMED BY THE ASSESSEE. THEREFORE WE DIRECT THE A.O. TO ALLOW T HE WEIGHTED DEDUCTION CLAIMED BY THE ASSESSEE UNDER THE PROVISIONS OF SEC TION 35(2AB)(1) OF THE ACT. 21. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF DIRECT EXPENSES FOR NON-DEDUCTION OF TAX AT SOUR CE UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. THE A.O. DI SALLOWED AN AMOUNT OF RS.3 57 463/- FOR THE REASON THAT THE ASSESSEE OUGH T TO HAVE DEDUCTED TDS ON SUCH PAYMENTS HOWEVER FAILED TO DEDUCT TDS AS REQUIRED UNDER THE PROVISIONS OF SECTION 194C OF THE ACT. I T IS THE CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE INCURRED UNDER TH E HEAD DIRECT EXPENSES HAVE BEEN FULLY PAID WITHIN THE SAME FINA NCIAL YEAR AND IN VIEW OF THE SPECIAL BENCH DECISION OF ITAT VISAKHA PATNAM IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA) NO DISALLOWANCE CAN BE MADE IF THE AMOUNTS HAVE BEEN FULLY PAID WITHIN TH E SAME FINANCIAL ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 29 YEAR. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSE E FOR THE REASON THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) UNDER SIMILAR CIRCUMS TANCES HELD THAT NO DISALLOWANCE CAN BE MADE UNDER THE PROVISIONS OF SE CTION 40(A)(IA) OF THE ACT IF THE AMOUNTS HAVE BEEN FULLY PAID WITHIN THE SAME FINANCIAL YEAR. THEREFORE WE ARE OF THE VIEW THAT THE A.O. WAS NOT CORRECT IN DISALLOWING DIRECT EXPENSES UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE. AS REG ARDS THE LD. D.R. ARGUMENTS THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF MERILYN SHIPPING & TRANSPORTS (SUPRA) WE FIND THAT THE COO RDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF MUKUNDARA ENGINEERS AND CO NTRACTORS VS. ACIT HAS CONSIDERED THE ISSUE AND AFTER CONSIDERING THE REVENUE OBJECTION WITH REGARD TO THE SPECIAL BENCH DECISION OF M/S. M ERILYN SHIPPING & TRANSPORTS (SUPRA) AND ALSO CONSIDERING THE RATIO O F HONBLE A.P. HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERING SYNDICAT E DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION IS REPRODUCED HEREUNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. CONSISTENT WITH THE VIEW TAKEN BY THE ITAT SPECIAL BENCH VISAKHAPATNAM AND ALSO IN THE LIGHT OF THE VIEW EXP RESSED BY THE HONBLE A.P. HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERIN G SYNDICATE WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 40A(IA) OF THE ACT CANNOT BE MADE APPLICABLE IN RESPECT OF THE AMOUNTS ALREADY P AID BEFORE 31 ST MARCH. IN OTHER WORDS THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 30 AMOUNTS PAYABLE AFTER 31 ST MARCH. WITH THESE OBSERVATIONS GROUND NO.3 OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 22. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULL Y FOLLOWING THE RATIO OF THE COORDINATE BENCH WE ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT FOR THE AMOUNTS WHIC H HAVE BEEN ALREADY PAID DURING THE FINANCIAL YEAR. HOWEVER THE FACTS RELATING TO PAID AND PAYABLE ARE NOT EMERGING FROM THE RECORDS THEREFOR E WE SET ASIDE THE ISSUE TO THE FILE OF THE A.O. AND DIRECT THE A.O. T O EXAMINE THE ISSUE PAID AND PAYABLE WITH REFERENCE TO BOOKS OF ACCOUNTS OF THE ASSESSEE AND IF THE EXPENDITURE INCURRED BY THE ASSESSEE IS PAID WI THIN THE SAME FINANCIAL YEAR THEN THE A.O. IS DIRECTED TO DELETE THE ADDITIONS MADE U/S 40(A)(IA) OF THE ACT. IN OTHER WORDS THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCES TO THE EXTENT THE AMOUNT REMAINING PA YABLE AT THE END OF THE FINANCIAL YEAR. 23. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS DISALLOWANCE OF BANK GUARANTEE CHARGES UNDER THE PROVISIONS OF S ECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF TDS U/S 194H OF THE AC T. THE LD. A.R. FOR THE ASSESSEE AT THE TIME OF HEARING SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT VISAKHAPATNAM IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2009-10 AND SUBMITTED THAT THE COOR DINATE BENCH OF THIS TRIBUNAL UNDER SIMILAR CIRCUMSTANCES DELETED THE ADDITIONS MADE BY ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 31 THE A.O. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO.205/VIZAG/2013 FOR THE ASSESSMENT YEAR 2009-10 B Y FOLLOWING THE DECISION OF ITAT MUMBAI IN THE CASE OF KOTAK SECURI TIES LTD. VS. DCIT (2012) 14 ITR (TRIB) 495 DELETED THE ADDITIONS MADE BY THE A.O. TOWARDS BANK GUARANTEE CHARGES. THE RELEVANT PORTI ON OF THE ORDER IS EXTRACTED AS UNDER: 2. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT T HE FIRST APPELLATE AUTHORITY HAS FOLLOWED THE DECISION OF THE MUMBAI B ENCH OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LIMITED V. DCIT REPORT ED IN (2012) 50 SOT 158 (MUMBAI) AND DELETED THE DISALLOWANCE IN QUESTI ON. 3. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KOTAK SECURITIES LIMITED (SUPRA) HELD AS FOLLOWS:- THERE IS NO PRINCIPAL AGENT RELATIONSHIP BETWEEN THE BANK ISSUING THE BANK GUARANTEE AND THE ASSESSEE. WHEN BANK ISSU ES THE BANK GUARANTEE ON BEHALF OF THE ASSESSEE ALL IT DOES I S TO ACCEPT THE COMMITMENT OF MAKING PAYMENT OF A SPECIFIED AMOUNT TO ON DEMAND THE BENEFICIARY AND IT IS IN CONSIDERATION OF THIS COMMITMENT THE BANK CHARGES A FEES WHICH IS CUSTOM ARILY TERMED AS `BANK GUARANTEE COMMISSION. WHILE IT IS TERMED AS `GUARANTEE COMMISSION IT IS NOT IN THE NATURE OF `COMMISSION AS IT IS UNDERSTOOD IN COMMON BUSINESS PARLANCE AND IN THE C ONTEXT OF THE S.194H. THIS TRANSACTION IS NOT A TRANSACTION BETW EEN PRINCIPAL AND AGENT SO AS TO ATTRACT THE TAX DEDUCTION REQUIREMEN TS UNDER S.194H. CIT(A) INDEED ERRED IN HOLDING THAT THE ASS ESSEE WAS INDEED UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE UNDER S. 194H FROM PAYMENTS MADE BY THE ASSESSEE TO VARIOUS BANKS . ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE U/S 194H THE QUESTION OF LEVY OF INTEREST U/S 201(1A) CANNOT ARISE. CONCLUSION : WHEN THERE IS NO PRINCIPAL AGENT RELATIONSHIP BETW EEN BANK ISSUING BANK GUARANTEE AND ASSESSEE TRANSACTION BETWEEN THEM IS NOT TRANSACTION BETWEEN PRINCIPAL AND AGENT SO AS TO ATTRACT TAX DE DUCTION UNDER S.194H. 4. RESPECTFULLY FOLLOWING THE ORDER IN THE CASE OF KOTAK SECURITIES LIMITED (SUPRA) WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. ITA NO.188 & 216/VIZAG/2015 M/S. EFFTRONICS SYSTEMS PVT. LTD. VJA 32 24. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH WE DIRECT THE A.O. TO DELETE THE ADDITIONS MADE TOWARDS BANK GUAR ANTEE CHARGES. 25. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE RE VENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21 ST OCT16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 21.10.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. EFFTRONICS SYSTEMS PVT. LTD . 40-15-9 BRUNDAVAN COLONY LABBIPET VIJAYAWADA 2. / THE APPELLANT THE ACIT CIRCLE-2(1) VIJAYAWAD A 3. / THE RESPONDENT THE ACIT RANGE-2 VIJAYAWADA 4. + / THE PRINCIPAL CIT VIJAYAWADA 4. + ( ) / THE CIT (A) VIJAYAWADA 5. # . . # / DR ITAT VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . # / ITAT VISAKHAPATNAM