2023 (8) TMI 1468 - AT - Income Tax

Weighted deduction u/s 35(2AB) - expenditure incurred on scientific research in in-house research and development facility - Department restricted the assessee s claim of weighted deduction to the extent of expenditure which was approved by the prescribed authority i.e. DSIR in Form 3CL - scope of amendment to section 35(2AB) HELD THAT - As w.e.f. 1-4-2016, the requirement of law underwent a change to the effect that on entering into agreement with DSIR in Form no.3CK, the assessee was required to submit information of its expenditure incurred inhouse research and development facility on land, building, capital and revenue expenditure, every year to the prescribed authority in Annexure-2 of Form no.3CK and prescribed authority was required to quantify the expenditure eligible for weighted deduction in Part-B of the Form No.3CL. What derives from the above, therefore, is that consequent to amendment to section35(2AB) by the Finance Act, 2015 w.e.f. 1.4.2016, requirement of law was that the prescribed authority had to quantify the quantum of eligible expenditure incurred on in-house research and development facility by the assessee. But prior to that there was no such requirement inlaw and the prescribed authority was the only required to grant approval to the in-house research development activity. The impugned assessment year before are Asst.Year 2014-15 2015-16. Since these assessments are prior to 1.4.2016, the amendment to section 35(2AB)) are not applicable to the same and in terms of un-amended provisions of section 35(2AB) of the Act, since we have held above that the prescribed authority was not required in law to quantify the amount of expenditure incurred on in-house research and development facility, such quantification, if any done by the prescribed authority in Form No.3CL was not required to be taken cognizance of by the Revenue authorities and the assessee is entitled to claim weighted deduction on all expenditure incurred by it, on in-house research development facility. Revenue has erred in restricting the claim of weighted deduction under section 35(2AB) of the Act to the extent approved by the prescribed authority i.e. DSIR - we direct the AO to allow full benefit of claim of weighted deduction to the assessee to the extent claimed in the P L accounts - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of claim of weighted deduction u/s 35(2AB) of the Income Tax Act, 1961.

Summary:

Issue 1: Disallowance of claim of weighted deduction u/s 35(2AB) of the Income Tax Act, 1961

The assessee filed appeals against the orders of the Commissioner of Income Tax (Appeals), NFAC, Delhi, concerning the disallowance of weighted deduction u/s 35(2AB) for the assessment years 2014-15 and 2015-16. The primary contention was that the Department restricted the weighted deduction to the expenditure approved by DSIR in Form 3CL, whereas the assessee claimed the deduction on the entire expenditure incurred on scientific research as per the profit and loss account.

The Tribunal noted that prior to the amendment effective from 1.4.2016, DSIR was not required to certify the quantum of expenditure incurred on in-house research and development in Form 3CL. The Tribunal agreed with the assessee's argument that for the years in question, the DSIR's certification of expenditure in Form 3CL was not relevant, and the entire expenditure incurred should be eligible for deduction.

The Tribunal examined the relevant provisions of section 35(2AB) and Rule 6 of the Income Tax Rules, 1962, and concluded that the law prior to 1.4.2016 did not mandate DSIR to quantify the expenditure eligible for weighted deduction. The Tribunal referenced various judgments supporting this interpretation and held that the Revenue erred in restricting the deduction based on DSIR's certification in Form 3CL.

Consequently, the Tribunal directed the Assessing Officer to allow the full benefit of the weighted deduction as claimed by the assessee in the profit and loss accounts, and the disallowance made for both years was directed to be deleted.

Conclusion:
The appeal of the assessee was allowed, and the disallowance of Rs. 23,45,490/- for AY 2014-15 and Rs. 27,31,502/- for AY 2015-16 u/s 35(2AB) was deleted.