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2010 (8) TMI 484 - AT - Income TaxDeduction u/s 35(2AB) In house research and development (R&D) activity - whether non-availability of the approval in the prescribed form for the relevant assessment year could disentitle the assessee of deduction u/s.35(2AB) or not. - Held that - A close reading of the section r.w. Rule 6 would reveal that nowhere any time has been prescribed within which the application is required to be filed by the assessee company. Further nowhere any condition has been prescribed regarding cut off date from which the approval could be made effective. Therefore once the assessee company is granted approval it will apply till it is revoked with reference to all the assessment years which come within the ambit of that period. Therefore mere mentioning of 1.4.2007 in the order dated 28.8.2008 was of no consequence and the approval granted in Form 3CM was also applicable for A.Y. 2005-06. - Therefore impliedly the application for the entire period for which it was made has to be deemed to have been granted. On the basis of above discussion we are of the opinion that the assessee was entitled for weighted deduction u/s. 35(2AB). - at best it could be said that it was only a procedural defect and from the various decisions noted in the arguments of ld Counsel for the assessee it is clear that merely on the ground of technicalities of procedure the benefit bestowed by legislature cannot be denied.
Issues Involved:
1. Eligibility for deduction under Section 35(2AB) of the Income Tax Act. 2. Compliance with procedural requirements for claiming the deduction. 3. Interpretation of statutory provisions and rules regarding approval for R&D facilities. Issue-wise Detailed Analysis: 1. Eligibility for Deduction under Section 35(2AB) The core issue revolves around whether the assessee is eligible for the weighted deduction under Section 35(2AB) of the Income Tax Act, 1961. The assessee, engaged in manufacturing electrical and electronics instruments, claimed a deduction of Rs. 11,21,461/- for R&D expenditure. The Assessing Officer (AO) denied the deduction, citing non-compliance with procedural requirements, such as failing to obtain necessary approvals in prescribed forms from the Department of Scientific and Industrial Research (DSIR). 2. Compliance with Procedural Requirements The AO's primary contention was that the assessee did not submit the required documentation in the prescribed forms (Form 3CK, 3CM, and 3CL) and did not obtain the necessary approvals from the Secretary, DSIR. The AO highlighted several deficiencies, including the lack of an application in Form 3CK, absence of an order in Form 3CM, and non-submission of a report in Form 3CL. The AO also pointed out that the in-house R&D recognition was not meant for tax exemption as per the terms and conditions attached to the recognition. 3. Interpretation of Statutory Provisions and Rules The CIT (A) allowed the assessee's appeal, noting that the assessee had filed Form 3CK before DSIR on 28.4.2008, albeit after the close of the relevant assessment year. The CIT (A) observed that no time limit was prescribed under the law for filing this application. The CIT (A) also noted that the DSIR had not rejected or approved the application for the relevant year, thus depriving the assessee of the benefit of Section 35(2AB) through no fault of its own. The CIT (A) relied on various judicial precedents emphasizing that statutory authorities must act in a manner that does not unjustly deprive taxpayers of benefits due to procedural lapses. The Tribunal further examined the object of Section 35(2AB) and the procedural requirements under Rule 6 of the Income Tax Rules. It noted that the absence of a specific time limit for filing applications and the lack of a cut-off date for the approval's effectiveness meant that the approval granted in Form 3CM was applicable for the assessment year in question. The Tribunal emphasized that technical procedural defects should not deny the substantive benefit intended by the legislature. Conclusion The Tribunal concluded that the assessee was entitled to the weighted deduction under Section 35(2AB). It noted that the assessee had complied with the basic requirements, and the procedural lapses were not sufficient to deny the benefit. The Tribunal dismissed the revenue's appeal, affirming the CIT (A)'s decision to allow the deduction. The judgment highlights the importance of interpreting statutory provisions and procedural requirements in a manner that advances the legislative intent and does not unduly penalize taxpayers for procedural non-compliance.
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