2013 (11) TMI 1541 - AT - Income Tax

Deduction u/s 35(2AB) - whether no in house scientific research has been carried out by the appellant? - claim of the assessee rejected on the basis that the assessee has not separately shown expenditure for in-house research & development - Held that - From the details of expenses it is seen that the amount was paid to ARAI Pune and for purchasing certain items from the market from various parties. Merely getting approval from ARAI and purchasing certain material from the market cannot be said to be carrying out in-house research & development activity. In our considered opinion research & development means to carry out research to find out some new technology or new equipment or product and that should be carried out inhouse as per the requirement of section 35(2AB) of the Act. From the details made available to us it has not come out that any research & development activity was carried out by the assessee and therefore the assessee is not eligible for weighted deduction u/s 35(2AB) of the Act. - Decided against assessee. Disallowance of Benevolent expenses - the expenditure cannot be said to have been laid wholly and exclusively for the purpose of business - Held that - In view of this Factory Order Part-II dated 20/01/2001 it cannot be said that the expenses incurred by the assessee company on account of death relief to the employee is not business expenditure and therefore the disallowance made by the Assessing Officer and confirmed by Learned CIT(A) on this basis is not justified. But still we feel that the details of collection from the employees and the contribution by the employer are to be examined by the Assessing Officer because the same was not examined by him in view of his outright rejection of the assessee s claim. Though the details were brought on record before us but the same could not be reconciled and therefore we feel it proper that for this limited aspect the matter should go back to the file of the Assessing Officer for fresh decision. We accordingly set aside the order of Learned CIT(A) on this issue and restore the matter to the Assessing Officer for fresh decision. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Deduction claimed under section 35(2AB) for in-house scientific research.
2. Disallowance of benevolent expenses for business purpose.

Issue 1 - Deduction under section 35(2AB):
The appellant contested that the Learned CIT(A) erred in confirming the deduction of Rs. 22,29,121 under section 35(2AB) of the I.T. Act, arguing that the expenses were for certification purposes and not in-house scientific research. The details of expenses included payments to various entities and organizations. The Bench questioned how these expenses qualified as in-house research and development. The appellant's representative claimed proper approval was obtained, justifying the expenses. However, the Revenue supported the lower authorities' decisions. The Tribunal analyzed the details and found no evidence of in-house research activities. Merely obtaining approval and purchasing materials externally did not constitute in-house research and development as required by the Act. Consequently, the appellant's claim for weighted deduction under section 35(2AB) was rejected.

Issue 2 - Disallowance of benevolent expenses:
Regarding the disallowance of Rs. 7,91,600 as benevolent expenses, the appellant argued that these expenses were for business purposes, citing a Factory Order Part-II. The Bench sought clarification on the contributions made by the employees and the employer. The Tribunal acknowledged that the expenses for death relief to employees were indeed for business purposes as per the Factory Order. However, due to discrepancies in the details provided, the matter was remanded to the Assessing Officer for further examination. The Tribunal directed the Officer to assess the quantum of expenditure based on verified employee contributions, employer contributions, and payments to legal heirs. The appellant was instructed to provide comprehensive details for a proper decision. Ultimately, the Tribunal allowed the appeal on this ground for statistical purposes.

In conclusion, the appeal was partly allowed for statistical purposes, with the first issue of deduction under section 35(2AB) being rejected, and the second issue of benevolent expenses being remanded for further assessment by the Assessing Officer.