2007 (8) TMI 373 - AT - Income Tax

Summary

Issues involved:
The issues involved in this judgment are the disallowance of expenditure on scientific research under section 35(1)(iv) of the Income Tax Act, 1961 and the computation of interest under section 234B.

Issue 1: Disallowance of expenditure on scientific research under section 35(1)(iv):
The assessee claimed a deduction of Rs. 96,99,624 under section 35(1)(iv) for engaging in specialized research activities and joint ventures. The Assessing Officer (AO) disallowed the expenditure, stating it was not related to the business. The assessee argued that providing consultancy services based on scientific research activities constituted their main business. The Tribunal referred to a case where consultancy services were considered a business activity and allowed deduction for scientific research expenditure related to the business. However, in this case, as the assessee only provided scientific research results to foreign companies and did not engage in any other business activities, the expenditure was not considered related to their business. Therefore, the deduction under section 35 was denied.

Issue 2: Computation of interest under section 234B:
The assessee also raised a ground regarding the computation of interest under section 234B. However, the judgment primarily focused on the disallowance of expenditure on scientific research under section 35(1)(iv) and did not provide detailed discussion on this issue.

In conclusion, the Appellate Tribunal upheld the disallowance of the expenditure on scientific research under section 35(1)(iv) as it was not considered related to the business activities of the assessee. The appeal was dismissed, and the order of the CIT(A) was confirmed.