2015 (10) TMI 467 - AT - Income Tax

Rectification u/s 154 - allowability of deduction u/s 35 for expenditure on scientific research - Held that - On a consideration of the peculiar facts and circumstances of the case we hold that rectification order in the facts as they stand does not amount to a review as admittedly the ground was not decided by the CIT(A) by mistake while passing the order dated 12.1.2011. We have taken ourselves through the order of the Tribunal followed by the CIT(A), wherein the expenditure has been denied for no fault to the assessee and merely because the AO chooses not to refer the matter to the prescribed authority does not warrant any interference. We find that the incurring of expenditure has not been doubted. Respectfully following the order of the Tribunal the departmental appeal is dismissed. Since the relief granted by the CIT(A) has been confirmed by us on the reasoning that non-adjudication of the specific ground in appeal by the CIT(A) in his order dated 12.01.2011 which necessitated the filing of rectification petition u/s 154 cannot be said to an act of reviewing the order as admittedly in the order dated 12.1.2011 mistake rectifiable u/s 154 had occurred which was corrected in the order dated 16.2.2012. Thus, since the order dated 16.2.2012 has been confirmed the assessee s appeal becomes infructuous.- Department appeal is dismissed and the assessee s appeal becomes infructuous.

Summary

Issues:
1. Non-adjudication of the specific ground before the CIT(A)
2. Allowability of deduction on account of Scientific Research & Development expenditure

Issue 1: Non-adjudication of the specific ground before the CIT(A)
The appeals by the assessee and the Revenue were decided by the ITAT Delhi concerning the 1993-94 assessment year. The assessee's appeal was against the CIT(A)-Faridabad's order, focusing on ground no. 2 related to the decision not following the Hon'ble Tribunal's decision in the appellant's own appeal for the A.Y. 1994-95. The Revenue's appeal was against the CIT(A)-Faridabad's order on the rectification petition filed by the assessee under section 154 of the Income Tax Act, 1961. The issue arose as the CIT(A) had not adjudicated on the assessee's claim of deduction on Scientific Research & Development due to a mistake. Both parties agreed on the non-adjudication of this specific ground before the CIT(A).

Issue 2: Allowability of deduction on account of Scientific Research & Development expenditure
The assessee claimed a deduction of expenditure on Scientific Research related to the business for the 1993-94 assessment year. The AO allowed revenue expenditure but disallowed capital expenditure. The CIT(A) failed to adjudicate on this issue, leading to an appeal by the assessee. The AO did not refer the matter to the prescribed authority, which was a crucial step for allowing the deduction. The ITAT, following the Punjab & Haryana High Court's decision, emphasized the AO's duty to refer such matters to the prescribed authority. The ITAT upheld the CIT(A)'s decision to allow the deduction, considering the factual scenario and legal provisions. The departmental appeal was dismissed, confirming the relief granted by the CIT(A) and rendering the assessee's appeal infructuous.

In conclusion, the ITAT upheld the decision to allow the deduction on Scientific Research & Development expenditure, emphasizing the AO's duty to refer such matters to the prescribed authority. The departmental appeal was dismissed, and the assessee's appeal became infructuous.