2023 (3) TMI 392 - AT - Income Tax

Weighted deduction u/s 35(2AB) in respect of capital expenditure - AO has made disallowance on the ground that the said amount has not been approved by the DSIR - HELD THAT - AO has relied upon the proviso to section 35(2AB)(1) of the Act which was applicable to the assessment years beginning on or after April 1 2021. Whereas the appeal before us pertains to the assessment year 2017-18. As it is clear that an assessee is allowed to claim deduction of a sum equal to two times the expenditure incurred on scientific research (not being expenditure in the nature of cost of any land or building). It is admitted position that DSIR had approved capital expenditure of INR 14, 33, 000. Therefore the appellant was in our view entitled to claim deduction of INR 28, 66, 000 being two times the amount of capital expenditure of INR 14, 33, 000 approved by the DSIR and incurred by the appellant during the relevant previous year. Accordingly addition of INR 14, 33, 000 made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals) is deleted. Assessee appeal allowed.

Summary

Issues:
Challenge to assessment order denying weighted deduction under section 35(2AB)
Validity of disallowance of claimed deduction by Assessing Officer
Interpretation of provisions of section 35(2AB)
Approval of capital expenditure by DSIR
Applicability of relevant legal provisions

Analysis:

1. The appellant challenged the order passed by the Commissioner of Income-tax (Appeals) regarding the denial of weighted deduction under section 35(2AB) for the assessment year 2017-18. The appellant raised five grounds of appeal, all related to the rejection of the claim of weighted deduction in respect of capital expenditure.

2. The Assessing Officer had partially denied the appellant's claim of deduction under section 35(2AB) by allowing only a portion of it and disallowing an amount of INR 14,33,134. The Assessing Officer held that the appellant was not entitled to claim weighted deduction for this amount as it had not been approved by the Department of Scientific and Industrial Research (DSIR).

3. The Commissioner of Income-tax (Appeals) dismissed the appellant's appeal, upholding the Assessing Officer's decision. The Commissioner noted that the DSIR had approved a specific amount of capital expenditure, and the appellant had claimed an amount exceeding the approved limit. The Commissioner held that the disallowance made by the Assessing Officer was justified, as the deduction under section 35(2AB) could only be allowed to the extent approved by the DSIR.

4. The appellant then appealed to the Appellate Tribunal, challenging the Commissioner's order. The Tribunal noted that the Assessing Officer had relied on a provision applicable to assessment years starting from April 1, 2021, whereas the appeal pertained to the assessment year 2017-18. The Tribunal interpreted the relevant provisions of section 35(2AB) and found that the appellant was entitled to claim a deduction equal to two times the amount of capital expenditure approved by the DSIR.

5. Consequently, the Tribunal allowed the appellant's appeal, overturning the decision of the Commissioner of Income-tax (Appeals). The Tribunal held that since the DSIR had approved a specific capital expenditure amount, the appellant was entitled to claim a deduction equal to twice that amount. Therefore, the disallowance made by the Assessing Officer and upheld by the Commissioner was deleted.

6. In conclusion, the Tribunal allowed the appellant's appeal, emphasizing that the appellant was entitled to claim the deduction under section 35(2AB) equal to two times the approved capital expenditure amount. The Tribunal's decision overturned the earlier rulings and provided relief to the appellant in this matter.