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2021 (9) TMI 139 - AT - Income TaxWeighted deduction claimed u/s.35 (2AB) on research and development expenditure - expenditure incurred outside India for which the assessee raised a claim of weighted deduction u/s.35(2AB) - HELD THAT - On a conjoint reading of section 35(1) (iv) read with section 35(2), it is manifested that any expenditure of capital nature incurred on scientific research, other than the cost of land etc., qualifies for full one time deduction in the year of such incurring. Unlike sub-section (2AB), sub-section (1) does not require any specific approval from the prescribed authority for this purpose - there is no stipulation that the expenditure should be incurred in India or outside or in-house R D facility or otherwise, save and except as provided in other clauses of subsection (1) of section 35. However, the amount of deduction u/s.35(1) is equal to the amount of capital expenditure on scientific research. Coming back to the amount of expenditure incurred by the assessee outside India we find that the expenditure of revenue nature was claimed by the assessee as revenue expenditure and accordingly allowed also. It is only the remaining capital expenditure that qualifies for deduction u/s.35(1)(iv). Exception to the claim of the ld. AR for granting Deduction of the capital expenditure on scientific research and development incurred outside India u/s.35(1)(iv) -The amount does not qualify for the weighted deduction. The fact that the claim of the assessee cannot be entertained under one provision does not oust it from consideration under any other provision, if it is otherwise allowable under such latter provision. We have noticed that the amount of capital expenditure incurred on research and development outside India is eligible for deduction u/s.35(1)(iv). The same, therefore, has to be allowed as such. DR s contention in this regard is sans merit and hence repelled. The entire amount of R D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB); revenue R D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself; total of capital R D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act.
Issues Involved:
1. Denial of weighted deduction claimed under Section 35(2AB) of the Income-tax Act, 1961 on research and development expenditure. 2. Eligibility of weighted deduction on expenditure incurred outside India. 3. Applicability of guidelines for approval of in-house R&D centers recognized by DSIR. 4. Restriction of weighted deduction to the amount quantified by the prescribed authority. 5. Deduction of capital expenditure of intangible nature for weighted deduction. 6. Deduction under Section 35(1)(iv) for capital expenditure incurred outside India. Issue-wise Detailed Analysis: 1. Denial of Weighted Deduction Claimed under Section 35(2AB): The assessee, engaged in manufacturing automobile accessories, claimed a weighted deduction under Section 35(2AB) amounting to ?26,73,42,263 on R&D expenses. The AO disallowed ?8,86,84,811, being the amount of capital R&D expenditure incurred outside India. The CIT(A) further restricted the deduction allowed by the AO based on the approval granted by the prescribed authority (DSIR) and the period of expenditure. The Tribunal held that the approval for the in-house R&D center should be considered from 1st April 2010, as per the guidelines, and not from the date of recognition (07-12-2010). 2. Eligibility of Weighted Deduction on Expenditure Incurred Outside India: The Tribunal examined the claim for weighted deduction on expenses incurred outside India. It was held that the expenditure incurred outside India did not qualify for weighted deduction under Section 35(2AB) as it was not on the in-house R&D facility approved by the prescribed authority. The Tribunal concluded that only the expenditure incurred in India amounting to ?5,45,58,297 was eligible for weighted deduction. 3. Applicability of Guidelines for Approval of In-house R&D Centers Recognized by DSIR: The CIT(A) relied on the guidelines issued by DSIR in May 2010, which stated that approval for in-house R&D centers would be considered from 1st April of the year the application was made. The Tribunal agreed with this interpretation, stating that the approval should be considered from 1st April 2010, thus allowing the expenditure incurred from that date. 4. Restriction of Weighted Deduction to the Amount Quantified by the Prescribed Authority: The CIT(A) restricted the weighted deduction to ?1,32,39,000, the amount quantified by the prescribed authority under Rule 6(7A) applicable from 01-07-2016. The Tribunal noted that the relevant rules requiring quantification by the prescribed authority came into effect after the assessment year under consideration (2011-12). Therefore, the CIT(A) was not justified in restricting the deduction based on the quantified amount by the prescribed authority. 5. Deduction of Capital Expenditure of Intangible Nature for Weighted Deduction: The CIT(A) disallowed the weighted deduction on capital expenditure of intangible nature based on the guidelines issued in May 2014. The Tribunal overturned this decision, noting that the guidelines applicable during the assessment year (2011-12) did not contain such a restriction. 6. Deduction under Section 35(1)(iv) for Capital Expenditure Incurred Outside India: The Tribunal held that the capital expenditure incurred outside India amounting to ?8,86,84,811 qualified for deduction under Section 35(1)(iv) of the Act. This provision allows deduction for capital expenditure on scientific research related to the business carried on by the assessee, without requiring specific approval from the prescribed authority. The Tribunal directed that this amount be allowed as a deduction. Conclusion: The Tribunal concluded that the assessee was entitled to weighted deduction under Section 35(2AB) for the expenditure incurred in India and deduction under Section 35(1)(iv) for capital expenditure incurred outside India. The appeal was partly allowed, granting relief to the assessee on various counts. The order pronounced on 31st August 2021, provided a detailed analysis of the applicable provisions and guidelines, ensuring that the deductions were allowed in accordance with the law.
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