2019 (9) TMI 404 - AT - Income Tax

Deduction u/s 35(2AB) - claim denied as assessee not furnished the approval of expenditure by DSIR in Form no.3CL - CIT-A allowed claim - HELD THAT - Commissioner (Appeals) makes it clear that, though, taking note of Form no.3CL filed by the assessee he has concluded that the assessee is eligible to claim deduction under section 35(2AB) of the Act in respect of expenditure approved by the DSIR, however, he has made it clear that such deduction is subject to verification of Form no.3CL by the Assessing Officer. Commissioner (Appeals) has given opportunity to AO to verify Form no.3CL before allowing deduction under section 35(2AB). It is relevant to observe, in pursuance to the directions of Commissioner (Appeals), AO has not only verified the approval granted in Form no.3CL by the DSIR but having found the expenditure claimed by the assessee to be genuine has allowed deduction u/s 35(2AB). Commissioner (Appeals) has not violated the provisions of rule 46A. As regards the contention of the Revenue in respect of R D expenditure amounting to ₹ 15.31 lakh, we fully agree with the learned Commissioner (Appeals) that though the assessee may not be eligible to claim deduction under section 35(2AB) of the Act with regard to such expenditure, however, it certainly can claim deduction of such expenditure as business expenditure. This is for the simple reason that the Assessing Officer has never doubted the genuineness of the expenditure claimed by the assessee. - Decided against revenue

Summary

Issues Involved:
Allowance of deduction under section 35(2AB) of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Allowance of Deduction under Section 35(2AB)
- The assessment involved cross-appeals arising from the Commissioner of Income Tax (Appeals) order for the assessment year 2014-15.
- The Revenue's appeal challenged the allowance of the assessee's claim of deduction under section 35(2AB) of the Act.
- The assessee, engaged in pharmaceutical business, claimed a deduction of ?2,25,14,000 under section 35(2AB) for Research & Development (R&D) activities.
- The Assessing Officer disallowed the deduction as the approval of expenditure in Form no.3CL was not submitted, despite approval of the R&D facility in Form no.3CM.
- The Commissioner (Appeals) allowed the deduction based on the approval in Form no.3CL and directed verification before allowing the deduction.
- The Tribunal upheld the Commissioner's decision, stating that the conditions of section 35(2AB) were satisfied with the approval in Form no.3CL.
- The Tribunal rejected the Revenue's argument of violation of rule 46A, noting that the Commissioner directed verification before allowing the deduction, which was subsequently verified and allowed by the Assessing Officer.
- Regarding additional R&D expenditure of ?15.31 lakh, the Tribunal agreed with the Commissioner that while not eligible under section 35(2AB), it could be claimed as business expenditure due to its genuineness.

Final Decision:
- The Tribunal dismissed the Revenue's appeal and the assessee's appeal, upholding the Commissioner's decision to allow the deduction under section 35(2AB) based on the approved expenditure in Form no.3CL and permitting the additional expenditure as business expenditure.