2014 (11) TMI 987 - AT - Income Tax

Failure to obtain permission before incurring expenditure u/s 34(2AB) and 35(2AB) - Held that - If the section 35(2AB)(1) is analyzed then the deduction shall be allowed of a sum equal to two times of the expenditure so incurred and the prescribed authority is to submit its report of such approval/facility to the Director General on a prescribed form within specified time, meaning thereby, the authority concerned has to submit the report to the Director General. However, if the totality of facts are analyzed, as mentioned earlier, the assessee made application for such approval on 11/12/2007 with the prescribed authority and such approval was granted on 04/03/2009, therefore, the assessee cannot be denied the claimed deduction u/s 35(2AB) of the Act merely on the ground that the prescribed authority did not submit form no. 3CL in time to the Income-tax Department. The assessee cannot be penalized for the fault, if any, of the Department. The Assessing Officer cannot be expected to be too technical rather is to take practical approach under 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 suggest that the date of approval of research and development facility will be cut off date for eligibility of weighted deduction under this section on expenses incurred from that date onwards; Once facility is approved, entire expenditure so incurred on development of research and development facility has to be allowed for such weighted deduction u/s 35(2AB) of the Act and thus it would be sufficient to hold that assessee has fulfilled the conditions as laid down in the section. - Decided against Revenue.

Summary

Issues:
1. Failure to obtain permission of prescribed authority before incurring expenditure u/s 34(2AB).
2. Inability to prove obtaining permission of prescribed authority before incurring expenditure u/s 35(2AB).

Issue 1: Failure to obtain permission of prescribed authority before incurring expenditure u/s 34(2AB):
The Revenue contested the order of the ld. First Appellate Authority, arguing that the assessee did not take permission of the prescribed authority before incurring any expenditure u/s 34(2AB). The ld. Commissioner of Income tax (Appeals) ruled in favor of the assessee, stating that the delay in obtaining Form No.3CL was due to reasons beyond the assessee's control, as it was issued by the Government of India after the assessment order. The Commissioner directed the Assessing Officer to verify the necessary forms and allow the weighted deduction u/s 35(2AB) to the assessee. The Tribunal upheld this decision, emphasizing that the assessee had applied for approval in accordance with the rules and complied with the conditions for claiming the deduction. The Tribunal highlighted that the prescribed authority had approved the research and development facility, and the delay in submitting Form No.3CL to the Income-tax Department should not penalize the assessee. The Tribunal concluded that the assessee met the requirements under section 35(2AB) of the Act, and affirmed the direction of the Commissioner of Income tax (Appeals).

Issue 2: Inability to prove obtaining permission of prescribed authority before incurring expenditure u/s 35(2AB):
The assessee declared a loss and claimed research and development expenditure u/s 35(2AB) of the Act. The ld. Assessing Officer disallowed the claimed deduction, citing lack of submission of approval from the prescribed authority. However, the ld. Commissioner of Income tax (Appeals) ruled in favor of the assessee, directing the Assessing Officer to allow the weighted deduction after verifying the necessary forms. The Tribunal concurred with this decision, emphasizing that the approval for the research and development facility was granted by the prescribed authority, and the delay in submitting Form No.3CL should not hinder the assessee from claiming the deduction. The Tribunal highlighted that once the facility is approved, the entire expenditure incurred on its development should be allowed for weighted deduction u/s 35(2AB) of the Act. Therefore, the Tribunal dismissed the Revenue's appeal, affirming the decision of the ld. Commissioner of Income tax (Appeals).

In conclusion, the Tribunal upheld the decision in favor of the assessee, emphasizing compliance with the rules and the approval granted by the prescribed authority for research and development activities, despite delays in submitting necessary forms.