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2014 (4) TMI 531 - AT - Income TaxDisallowance of weighted deduction u/s 35(2AB) of the Act In-house R&D scientific research - Nature of expenses Capital or revenue Held that - The assessee has made claim for the deduction u/s 35(2AB) which is for expenditure incurred on in-house R&D facilities - The letter issued by DSIR is only for renewal of recognition of in-house R&D units - There is no formal order or approval for such inhouse R&D facilities in the prescribed form under section 35(2AB) - The assessee could not show as to whether any approval of in-house R&D facilities has been issued in prescribed form by the DSIR, even if it is signed by any authority like Scientist-G for on/or behalf of the Secretary, DSIR - in the subsequent years, if such an order is available, then the assessee has to show that the order of the approval for in-house R&D facility has been granted by the DSIR covering the present assessment year thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for verification of the fact as to whether any order of approval of inhouse R&D facilities has been issued for the relevant assessment year Decided partly in favour of Assessee. Disallowance of bad debt Held that - In the case of Auribindo Pharma, the assessee had shown the amount of bad debt written of at Rs. 8,24,978 - the AO has taken the figure of Rs. 1,08,48,951, which pertained to different parties - to this extent, only the figure of Rs. 8,24,978 should be taken into consideration for the purpose of adjudication - otherwise the observation and conclusion of the CIT(A) are absolutely correct and is in accordance with the law that the AO has to examine the conditions laid down in section 36(1)(vii) and whatever amount has been written of in the books of account as bad debts the same should be allowed Relying upon TRF. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT there was no infirmity in the order of the Commissioner (Appeals) Decided partly in favour of Assessee. Claim of Deduction u/s 80G and section 80IB of the Act Held that - The contention of the assessee is legally tenable because at the time of filing of return of income, the net income was in loss - the claim of deduction u/s 80IB had no meaning - if the income is assessed at positive figure, then the same has to be allowed as deduction Decided partly in favour of Assessee.
Issues Involved:
1. Disallowance of weighted deductions under Section 35(2AB) of the Income Tax Act. 2. Nature of expenditure incurred under Section 35(2AB) - Capital or Revenue. 3. Addition on account of bad debts. 4. Deduction under Section 80G. 5. Deduction under Section 80IB. Detailed Analysis: 1. Disallowance of Weighted Deductions under Section 35(2AB): The assessee, engaged in the business of manufacturing and marketing pharmaceuticals, claimed a deduction of Rs. 1,05,65,392 for in-house scientific research under Section 35(2AB). The Assessing Officer disallowed the claim, stating the approval must be obtained from the Secretary, DSIR, not from a Scientist-G. The Commissioner (Appeals) upheld this, emphasizing the necessity of approval in the prescribed form. However, the Tribunal recognized that procedural defects should not deny the benefit if the substantive requirements are met. The Tribunal directed the Assessing Officer to verify if the approval was granted by DSIR for the relevant assessment year and to consider the expenditure under Section 35(1) or Section 37 if no approval was available. 2. Nature of Expenditure Incurred under Section 35(2AB) - Capital or Revenue: The assessee argued that the expenditure of Rs. 70,43,595 on in-house R&D was revenue in nature and should be allowed as a business expense under Section 37. The Commissioner (Appeals) rejected this, stating the expenditure provided long-term benefits and was capital in nature. The Tribunal directed the Assessing Officer to re-examine the nature of the expenditure and allow it under Section 35(1) or Section 37 if it was revenue in nature. 3. Addition on Account of Bad Debts: The assessee wrote off bad debts amounting to Rs. 1,08,48,954, but the Assessing Officer disallowed the claim, citing a lack of documentary evidence. The Commissioner (Appeals) directed the Assessing Officer to re-examine the claim, referencing the Supreme Court's decision in TRF Ltd. v/s CIT. The Tribunal found that only Rs. 8,24,978 pertained to Auribindo Pharma, with the rest related to different parties. The Tribunal upheld the Commissioner (Appeals)'s direction to re-examine the conditions under Section 36(1)(vii) and allow the amount written off in the books. 4. Deduction under Section 80G: The Commissioner (Appeals) directed the Assessing Officer to verify the claim for deduction under Section 80G but did not allow it himself. The Tribunal dismissed this ground as the assessee's net income was in loss, making the claim insignificant. 5. Deduction under Section 80IB: The Commissioner (Appeals) directed the Assessing Officer to verify the claim for deduction under Section 80IB. The Tribunal agreed that if the income assessed is positive after giving effect to the order, the deduction should be allowed. Conclusion: The assessee's appeal was partly allowed for statistical purposes, directing further verification and re-examination on several issues. The Revenue's appeal was dismissed, upholding the Commissioner (Appeals)'s directions regarding the bad debts claim. The Tribunal emphasized procedural compliance and substantive fulfillment of conditions for deductions and allowances under the Income Tax Act.
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