2024 (11) TMI 77 - AT - Income Tax

Disallowance of excess deduction claimed u/s 35(2AB) - assessee has taken a grant-in-aid from DSIR which was repayable in the form of royalty aggregating to 1.3 times of the money actually received by the assessee, therefore AO considered the amount as royalty and observed that grant-in-aid received by the assessee cannot be considered for the purpose of weighted deduction - HELD THAT - We find that there is merit in the argument of the AR that in the earlier assessment year assessee has received sum as soft loan on similar terms and conditions as entered into tripartite agreement during the impugned assessment year. Further the Ministry of Science and Technology has also confirmed that the funds provided by them is in the nature of soft loan and not a grant-in-aid for the earlier loan taken by the assessee. Since the terms and conditions of the tripartite agreement are identical for both the assessment years the argument of the AR deserves consideration. The assessee has categorized the amount received from DSIR as unsecured loans in their financial statements which was not disputed by the revenue. AR also submitted a copy of invoice wherein interest on the repayment of the loan has been disclosed and consequently tax has been deducted at source on the interest paid. We are of the considered opinion that the assessee has taken a soft loan which is repayable in five equal instalments cannot be considered as a grant-in-aid and therefore assessee is eligible for weighted deduction u/s 35(2AB). We therefore allow grounds raised by the assessee and direct the AO to delete the disallowance of weighted deduction u/s 35(2AB).

Summary

Issues:
Appeal against order of Commissioner of Income Tax (Appeals) for A.Y. 2012-13 & 2013-14 regarding disallowance of weighted deduction under section 35(2AB) of the Income Tax Act, 1961.

Analysis:
For A.Y. 2012-13, the assessee, engaged in the production and sale of equipment, claimed weighted deduction under section 35(2AB) for R&D expenses. The Assessing Officer disallowed the excess claim after finding discrepancies in the agreement with DSIR and grant received. The CIT(A) upheld the disallowance, considering the grant as a loan. Assessee appealed, arguing the grant was a soft loan repayable in instalments. The ITAT allowed the appeal, noting the earlier acceptance of a similar loan and the categorization as unsecured loans in financial statements. The ITAT held the grant was a soft loan, eligible for deduction, directing the AO to delete the disallowance.

For A.Y. 2013-14, the issues and facts were identical to A.Y. 2012-13. The ITAT applied the same reasoning and allowed the appeal.

In conclusion, both appeals by the assessee were allowed, with the ITAT directing the deletion of the disallowance of weighted deduction under section 35(2AB) for both assessment years.