2019 (8) TMI 1524 - AT - Income Tax

Disallowance of deduction u/s 35(2AB) - assessee company is engaged in the business of production and procuring of vegetable, fruits and flower seeds from local as well as overseas market and sells them in Indian as well as export market - assessee is also engaged in production and processing of hybrid seed - HELD THAT - Assessee company is engaged in the business of production and procuring of vegetable, fruits and flower seeds from local as well as overseas market and sells them in Indian as well as export market. Assessee is also engaged in production and processing of hybrid seeds. Assessee has set up Research and Development facility to cater to the requirements of agricultural sector. The assessee claimed deduction u/s. 35(2AB) in respect of R D facilities. R D center of the assessee is approved by DSIR. However, the claim of assessee was disallowed by the Assessing Officer on the ground that as against the assessee s claim of weighted deduction of ₹ 9,85,70,330/-, the DSIR has approved ₹ 6,25,52,000/-. The contention of the assessee is that during the period relevant to assessment year under appeal DSIR has no power to quantify the deduction claimed by assessee u/s. 35(2AB). The only requirement is the recognition of R D facility by DSIR. We find that the issue raised in the appeal is squarely covered by the decision rendered in the case of Cummins India Ltd. Vs. Deputy Commissioner of Income Tax 2018 (5) TMI 1314 - ITAT PUNE . After considering the undisputed facts of the case and the decisions of the Co-ordinate Bench on the issue, we uphold the findings of CIT(Appeals) in allowing assessee s claim of weighted deduction u/s. 35(2AB) of the Act.

Summary

Issues Involved:
1. Disallowance of deduction u/s 35(2AB) of the Act
2. Interpretation of provisions of section 35(2AB) of the Act and Rule 6 of the Income Tax Rules 1962
3. Restoration of the order of the AO and vacation of the order of the CIT(A)-1

Issue 1: Disallowance of deduction u/s 35(2AB) of the Act:
The appeal by the Revenue challenged the deletion of an addition made on account of disallowance of deduction u/s 35(2AB) of the Act, amounting to ?3,60,18,330, for the assessment year 2014-15. The assessee, engaged in the production and procurement of seeds, claimed deduction u/s 35(2AB) for its Research and Development (R&D) facilities, approved by DSIR. The Assessing Officer disallowed the claim, citing a discrepancy between the claimed and approved amounts by DSIR. However, the Tribunal, referencing previous decisions, held that once the R&D facility is recognized by the prescribed authority, the Assessing Officer should allow the expenditure incurred on the facility for weighted deduction under section 35(2AB) of the Act. The Tribunal reversed the Assessing Officer's order, allowing the deduction claimed by the assessee. The Co-ordinate Bench also supported a similar view in another case.

Issue 2: Interpretation of provisions of section 35(2AB) of the Act and Rule 6 of the Income Tax Rules 1962:
The appeal raised concerns regarding the interpretation of section 35(2AB) of the Act and Rule 6 of the Income Tax Rules 1962. The assessee argued that the DSIR's power was limited to recognizing the R&D facility, not quantifying the deduction claimed by the assessee. The Tribunal concurred, emphasizing that the prescribed authority's role is to approve the expenditure annually, and prior to a specific amendment in 2016, no methodology was prescribed for this approval. The Tribunal held that the Assessing Officer should allow the expenditure once the facility is recognized, rejecting the curtailment of the deduction based on the approved amount by DSIR.

Issue 3: Restoration of the order of the AO and vacation of the order of the CIT(A)-1:
The Revenue sought the restoration of the Assessing Officer's order and the vacation of the Commissioner of Income Tax (Appeals)-1's order. However, after considering the arguments and previous decisions, the Tribunal upheld the Commissioner's decision in allowing the assessee's claim of weighted deduction u/s 35(2AB) of the Act. The Tribunal found no merit in the Revenue's appeal, leading to the dismissal of the appeal for lack of merit.

In conclusion, the Tribunal upheld the Commissioner's decision, allowing the assessee's claim for weighted deduction under section 35(2AB) of the Income Tax Act. The judgment emphasized the importance of recognizing the R&D facility by the prescribed authority for claiming deductions and rejected the Revenue's appeal against the deletion of the disallowed deduction amount.