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2025 DIGILAW 487 (KER)

Nitta Gelatin India Limited v. Union Of India

2025-03-06

HARISANKAR V.MENON

body2025
JUDGMENT : The petitioner has filed the captioned writ petition challenging Exts.P7, P12 and P14 issued by the 2 nd respondent with reference to the provisions of Section 35 (2AB)(1) of the Income Tax Act, 1961 . 2. The brief facts are as under:- The petitioner is a Public Listed Company engaged in the Manufacture and sale of Ossein, Gelatin and other Proteins. The petitioner is stated to have two units in the State of Kerala and one unit in the State of Maharashtra. The petitioner is an assessee under the provisions of the Income Tax Act, 1961 . 3. The petitioner contends that it is eligible for the benefits extended under Section 35 (2AB)(1) of the Income Tax Act in the form of deductions extended thereunder. The benefits under the provisions of Section 35 (2AB)(1), require quantification and approval from the side of the authorized authority – the 2 nd respondent herein. The units in Kerala were admittedly approved. The approval as regards the unit in Maharashtra was issued as evidenced by Ext.P1 dated 14.06.2017. 4. It may straightaway be noticed that the approval as above for the Maharashtra unit was w.e.f. 26.12.2014 till 31.03.2018. The petitioner contends that it had made various “expenditures” under Section 35(2AB) (1) during the financial years 2014-15 onwards. However, when the petitioner sought to claim the benefits for the period 26.12.2014 onwards, the 2 nd respondent informed the petitioner that the petitioner has merely made expenditure, however, the work with respect to the afore expenditure was only being carried on and not finalised and hence, in the nature of “work-in-progress” and therefore ineligible for the benefits under the afore sections. This is clear from a reading of Ext.P10 minutes of the meeting of the 2 nd respondent, wherein the Managing Director of the petitioner was also a signatory. The afore minutes dated 09.02.2017, also state that the Managing Director of the petitioner has also agreed that they will not seek revision of the quantification to be issued by the 2 nd respondent for the assessment years 2014-15 and 2015- 16. In the light of Ext.P10, the petitioner states that he submitted Ext.P11 before the 2 nd respondent dated 16.02.2017, claiming the benefits under the afore section with respect to an investment of Rs.332.31 lakhs. In the light of Ext.P10, the petitioner states that he submitted Ext.P11 before the 2 nd respondent dated 16.02.2017, claiming the benefits under the afore section with respect to an investment of Rs.332.31 lakhs. A reading of Ext.P11 would show that the petitioner submitted it, presumably on the basis of the advice contained in Ext.P10 minutes directing them to make a claim for the financial year 2015-16. The 2 nd respondent considered the claim and came out with Ext.P12, taking a U-turn and informing the petitioner that the certification under Form 3CL can only be with respect to the “expenditure incurred in the particular year” and insofar as the amounts pointed out were expanded during the financial years 2013-14, 2014-15 and 2015-16, the same cannot be considered for extension of benefits for the financial year 2016-17. This is followed with Ext.P14 dated 23.10.2017, repeating the same stand with respect to certain guidelines under the provisions of Section 35(2AB) (1), referred to above. 5. It is in such circumstances that the petitioner preferred the captioned writ petition. 6. I have heard Sri.Joseph Markose, the learned senior counsel for the petitioner, Sri.Krishnadas P.Nair, the learned Senior Central Government Counsel for respondents 1 and 2 as well as Sri.Jose Joseph, the learned Standing Counsel for the Income-Tax Department. 7. The short issue arising for consideration in this writ petition is as regards the interpretation of Section 35(2AB) (1), with reference to the impugned orders issued by the 2 nd respondent herein. 8. The facts are not in dispute. The petitioner had claimed the benefits under the afore section originally with respect to the respective years during which the investments/expenditures were made. However, as seen from Ext.P10 minutes of the 2 nd respondent dated 09.02.2017, I notice that originally it was the stand of the 2 nd respondent that there was no recognition as regards the Maharashtra Unit. However, Ext.P10 minutes was dated 09.02.2017 and the recognition as regards the Maharashtra Unit is seen issued as per Ext.P5 dated 14.06.2017 with retrospective effect from 26.12.2014. In such circumstances, the first finding in Ext.P10 does not appear to be correct. Ext.P10 further considers the requirement of the petitioner for claiming the benefits under the section, with respect to the investments carried out from the financial year 2014-15 onwards. With respect to the afore claim, two findings are recorded in Ext.P10. In such circumstances, the first finding in Ext.P10 does not appear to be correct. Ext.P10 further considers the requirement of the petitioner for claiming the benefits under the section, with respect to the investments carried out from the financial year 2014-15 onwards. With respect to the afore claim, two findings are recorded in Ext.P10. Firstly, it is recorded that the Managing Director of the petitioner agreed that they will not seek revision of the Form 3CL for the assessment years 2014-15 and 2015-16. Secondly, it is stated that as per the guidelines applicable to the 2 nd respondent, “work-in-progress” is not to be considered for the deductions available under the afore Section for the assessment year during which the actual expenditure was made. The suggestion of the 2 nd respondent that it is for the petitioner to make a claim for 2015-16 when the actual conversion of the expenditure as “capital expenditure” is carried out, is also seen recorded in Ext.P10. I am of the opinion that the admission made by the Managing Director of the petitioner Company, as seen recorded in Ext.P10, is to be read along with the last paragraph of Ext.P10 wherein certain suggestions have been made by the 2 nd respondent, in the light of the suggestion as above. In that view of the matter, I am of the opinion that the petitioner cannot be made bound by the so-called admission made by the Managing Director of the petitioner Company. 9. On the face of the said finding, the claim made by the petitioner in Ext.P11 and the consideration of the afore claim in Exts.P12 and P14 are required to be considered. I notice that Ext.P11 claim is made by the petitioner before the 2 nd respondent with respect to the suggestions given by the 2 nd respondent as recorded in Ext.P10. When such a claim is made, with the required certification from the auditor etc., the 2 nd respondent takes a U-turn as seen recorded in Ext.P12. In Ext.P12, the stand of the 2 nd respondent is to the effect that the expenditure incurred as claimed in Ext.P10 ought to have been claimed with reference to the actual years during which the investments were made. The afore stand is seen recorded in Ext.P14 also. 10. In Ext.P12, the stand of the 2 nd respondent is to the effect that the expenditure incurred as claimed in Ext.P10 ought to have been claimed with reference to the actual years during which the investments were made. The afore stand is seen recorded in Ext.P14 also. 10. I am of the opinion that the ultimate findings contained in Exts.P12 and P14 cannot be sustained for more than one reason. Firstly, the findings in Ext.P12 as well as Ext.P10 require to be considered with reference to the provisions of the statute. Section 35(2AB) (1) reads as under: - “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 deduction of a sum equal to two times of the expenditure so incurred.” A reading of the afore section would show that a Company engaged in the business of manufacture of any article or a thing, not being an article or a thing specified in the list of the 11 th Schedule, incurs any expenditure on “scientific research on in- house research and development facility” and the same is being approved by the 2 nd respondent herein, is eligible for extension of a deduction of a sum equal to 200% of the expenditure incurred. The provisions of Section 35(2AB) (1), as noticed afore only speaks about “expenditure” being incurred by the Company. There is no differentiation as regards ineligibility with respect to “work-in-progress”. Unless and until the statute disentitles an assessee from claiming the benefits with respect to “work-in- progress”, I am of the opinion that the stand taken in the last paragraph by Ext.P10 minutes which led to the ultimate confusion, is not to be accepted. In this connection, I notice the judgment rendered by a Division Bench of the Orissa High Court in Belpahar Refractories Ltd. v. Commissioner of Income- Tax , [ 1994 207 ITR 144 ] , wherein a position which was just the reverse, was considered by the Court. In this connection, I notice the judgment rendered by a Division Bench of the Orissa High Court in Belpahar Refractories Ltd. v. Commissioner of Income- Tax , [ 1994 207 ITR 144 ] , wherein a position which was just the reverse, was considered by the Court. In that case, the assessee claimed deductions with reference to the provisions of Section 35(2) (ia) with respect to the ultimate capitalization. The Division Bench of the Orissa High Court came to the finding that in such a case, the assessee ought to have claimed the benefits with respect to the year in which the expenditure was incurred. I also notice the judgment of the Madras High Court in Commissioner of Income-Tax v. Rane Brake Linings Ltd., [2002 255 ITR 395] , wherein a Division Bench of the Court with reference to provisions of Section 35(1)(iv), also took a similar view. 11. In the light of the afore findings, I am of the opinion that the petitioner ought to have been extended the benefits with respect to the actual year in which the expenditure was incurred. 12. Furthermore, I notice that the petitioner submitted Ext.P11 solely on account of the advice they received as seen recorded in Ext.P10. When such an advice was received, and the petitioner acted on that basis, the petitioner cannot be found fault with if ultimately it is found that it is for the petitioner to claim the benefits with reference to the actual year in which the expenditure was incurred. In that view of the matter, the ultimate findings contained in Exts.P12 and P14 are not to be sustained. I also notice that the petitioner had submitted Ext.P7 with reference to the claims for the financial year 2013-14 without including the expenditure made for the Maharashtra unit, essentially on the basis of the advice that it originally received. The petitioner cannot be found fault for making such a claim also. Therefore the petitioner is entitled to succeed. Resultantly, this writ petition would stand allowed as under: i. Exts.P12 and P14 would stand set aside. ii. Ext.P7, to the extent of the same covering the financial year 2013-14 is also set aside. iii. The petitioner cannot be found fault for making such a claim also. Therefore the petitioner is entitled to succeed. Resultantly, this writ petition would stand allowed as under: i. Exts.P12 and P14 would stand set aside. ii. Ext.P7, to the extent of the same covering the financial year 2013-14 is also set aside. iii. The petitioner to file a fresh claim before the 2 nd respondent in tune with the directions contained in this judgment with reference to the actual years during which the expenditures were incurred within a period of six weeks from today. iv. If such an application is being filed by the petitioner, the 2 nd respondent to consider the same and pass fresh orders, in accordance with law and the principles laid down in this judgment, after granting the petitioner an opportunity of being heard within a further period of twelve weeks thereafter.