2022 (9) TMI 829 - AT - Income Tax

Disallowance being weighted deduction u/s 35(2AB) - Claim of assessee towards revenue expenditure being consultation fees which were actually in the form of remuneration and the entire R D activities were carried out in the appellant company s premises - whether claim of Appellant u/s 35(2AB) cannot be allowed without certification by the DSIR? - HELD THAT - We find that neither before the A.O nor before the ld. CIT(A) the assessee was able to substantiate the claim of revenue expenditure.It is not apparent either from the order of the ld. A.O or from the ld. CIT(A) s order what relevant evidences/materials were provided by the assessee in order to substantiate its claim for weighted deduction u/s 35(2AB) - Whether the assessee was able to justify the alleged consultancy services paid to the concerned three professionals and whether those can be brought within the status of in-house research and development facilities, no such evidence is apparent in the orders of the subordinate authorities and whether at all, the assessee had submitted such evidences before them. As It is not apparent either from the order of the ld. A.O or from the ld. CIT(A) s order what relevant evidences/materials were provided by the assessee in order to substantiate its claim for weighted deduction u/s 35(2AB) of the Act. Whether the assessee was able to justify the alleged consultancy services paid to the concerned three professionals and whether those can be brought within the status of in-house research and development facilities, no such evidence is apparent in the orders of the subordinate authorities and whether at all, the assessee had submitted such evidences before them. Thus matter should be restored to the file of the ld. A.O for adjudication as per law and as prayed for by the assessee. They should provide all evidences/documents to substantiate their claim of weighted deduction u/s 32(2AB) of the Act before the ld. A.O - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Confirmation of disallowance of weighted deduction u/s 35(2AB) for revenue expenditure claimed as consultation fees without DSIR certification.

Analysis:
1. The appeal arose from the disallowance of Rs. 45.65 lakhs claimed as weighted deduction u/s 35(2AB) for revenue expenditure on consultation fees. The AO and CIT(A) disallowed the claim as the expenses were for consultancy services not meeting the in-house research criteria of the Act.

2. The AO noted that the DSIR found the consultancy fees paid to professionals ineligible for weighted deduction u/s 35(2AB). The CIT(A) upheld this decision, emphasizing the necessity of DSIR certification for claiming the deduction.

3. The appellant argued that certification from DSIR was not mandatory based on precedents. However, the Tribunal observed that the expenses did not qualify as per DSIR, and the appellant failed to provide sufficient evidence to support the claim during the proceedings.

4. The appellant submitted an affidavit affirming that agreements with R&D professionals were submitted to the AO and CIT(A. The Tribunal decided to remand the case to the AO for further examination based on the presented evidence and documentation.

5. Ultimately, the Tribunal allowed the appeal for statistical purposes, directing the AO to reevaluate the claim with all supporting documents provided by the appellant.

This detailed analysis highlights the core issue of DSIR certification for claiming weighted deduction u/s 35(2AB) and the importance of substantiating claims with appropriate evidence in tax matters.