2019 (5) TMI 112 - HC - Income Tax

Weighted deduction of expenditure incorporated u/s 35 (2AB) - expenditure was incurred by the Assessee on Scientific Research - mandatory condition of producing the approval for the Assessment Year in question was not complied with - HELD THAT - Allowability of weighted deduction to the Assessee u/s 35 (2AB) since the requisite approval for the project on which expenditure was incurred by the Assessee on Scientific Research was approved for the period prior and even subsequent to AY 2003-2004. The said condition of approval stood substantially complied with. Assessee had contended before the authorities below that approval from the Ministry concerned of the Central Government for the year in question was also under active consideration and awaited. Assessee cannot be punished for the bureaucratic delay in giving such approval for the year in question, which was in the hands of the Department concerned of the Central Government itself. On the very fact that for the period anterior and posterior to the year in question such approval was very well on the record of the Revenue, the weighted deduction for the expenditure incurred on the Scientific Research could not have been disallowed by the authorities below and, therefore, Tribunal, in our view, rightly held such Scientific Research expenditure to be allowable under Section 35 (2AB). - Decided in favour of the Assessee and against the Revenue. Levy of Interest u/s 234D - HELD THAT- Computation of interest will depend upon the appeal effect order to be passed, the quantum of net payment is to be determined accordingly, after allowing weighted deduction under Section 35 (2AB) . The provisions of Section 234D have been held applicable for Assessment Year 2003-2004 in question in terms of the decision of the Co-ordinate Bench of this Court in the case of Fisher Sanmar Ltd . 2014 (4) TMI 236 - MADRAS HIGH COURT . - Decided in favour of the Revenue and against the Assessee.

Issues:
1. Allowability of weighted deduction under Section 35 (2AB) of the Income Tax Act.
2. Interpretation of approval requirement for weighted deduction under Section 35 (2AB).
3. Levy of interest under Section 234D of the Act on excess refund.
4. Application of Section 234D for interest on refund pre and post its insertion.

Issue 1: Allowability of Weighted Deduction under Section 35 (2AB):

The Revenue filed appeals challenging the Tribunal's decision allowing the Assessee's claim for weighted deduction under Section 35 (2AB) of the Income Tax Act for Assessment Year 2003-2004. The Revenue argued that the Assessee did not produce the necessary approval for scientific research, a mandatory condition for claiming the deduction. However, the Tribunal found that the Assessee had fulfilled all requirements for the deduction, even though specific approval for the assessment year was pending. The Tribunal held that the approval condition was substantially met, considering approvals for prior and subsequent periods. The delay in approval for the assessment year should not penalize the Assessee, especially when approvals for other periods were in place. Thus, the Tribunal ruled in favor of the Assessee, allowing the weighted deduction.

Issue 2: Interpretation of Approval Requirement for Weighted Deduction under Section 35 (2AB):

The Tribunal considered the argument that the approval for scientific research projects should be specific to the assessment year in question. However, the Tribunal noted that the facility and project had been approved, and the expenditure incurred on research and development (R&D) should be allowed for weighted deduction. The Tribunal referenced a precedent stating that once the facility is approved, the entire expenditure on R&D should be eligible for deduction, without restrictions based on the approval date. The Tribunal emphasized that the law does not provide for a cut-off date for eligibility of weighted deduction based on approval timing. Therefore, the Tribunal held that the Assessee was entitled to the deduction for the expenditure incurred on R&D facility development.

Issue 3: Levy of Interest under Section 234D on Excess Refund:

The Revenue raised the issue of levying interest under Section 234D on the excess refund made to the Assessee for Assessment Year 2003-2004. Referring to a previous judgment, the Revenue argued that interest should be applied if the regular assessment occurred after the amendment of Section 234D, even if the assessment period was before the amendment. However, the Tribunal did not agree with this interpretation. The Tribunal held that interest under Section 234D should be levied on the excess refund amount, considering the amendment date, and ruled in favor of the Revenue on this issue.

Issue 4: Application of Section 234D for Interest on Refund Pre and Post Its Insertion:

The Tribunal addressed the application of Section 234D for interest on refunds granted before and after its insertion. While the computation of interest depended on the appeal effect order, the Tribunal determined that the provisions of Section 234D were applicable for Assessment Year 2003-2004. Citing a previous decision, the Tribunal held that interest under Section 234D should be charged, supporting the Revenue's position on this matter. Consequently, the Appeals of the Revenue were allowed in part, with the Questions of Law 3 and 4 answered in favor of the Revenue and against the Assessee.

This detailed analysis of the judgment provides insights into the issues surrounding the allowability of weighted deduction, interpretation of approval requirements, levy of interest under Section 234D, and the application of interest on refunds pre and post its insertion.

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