2005 (7) TMI 51 - HC - Income Tax

1. Whether, Tribunal was justified in allowing the claim of deduction being expenditure incurred on scientific research and development? 2. Whether Tribunal was legally justified in upholding the order of the learned Commissioner of Income-tax (Appeals) directing the Assessing Officer to allow claim being interest on Government loan which was correctly disallowed by the Assessing Officer? 3. Whether, Tribunal was legally justified in holding that the expenses relating to earlier years claimed during the year under consideration was liable to be considered in the assessment year 1986-87 which was rightly disallowed by the Assessing Officer for the year under consideration, i.e., the assessment year 1985-86 in the circumstances of the case?

Summary

Issues:
1. Deduction of expenditure on scientific research and development.
2. Allowance of interest on Government loan.
3. Consideration of expenses relating to earlier years in the assessment year.

Analysis:

Issue 1: Deduction of Expenditure on Scientific Research and Development
The Tribunal was questioned on the justification of allowing the deduction of Rs. 13,78,569 and Rs. 3,98,412 for expenditure on scientific research and development. The Assessing Officer disallowed this claim due to no income under the head "Business and profession." However, the Commissioner of Income-tax (Appeals) and the Tribunal, referencing a previous decision, allowed the deduction as the expenditure was related to the business. The High Court, following the precedent, affirmed the deduction as allowable since the expenditure was connected to the business operations.

Issue 2: Allowance of Interest on Government Loan
The second issue revolved around the allowance of Rs. 25,43,025 claimed as interest on Government loans. The Assessing Officer disallowed this claim as it was not provided for in the accounts, despite being debited to the profit and loss account. The Commissioner of Income-tax (Appeals) directed verification and allowance on an actual accrued basis. Citing a legal precedent, the High Court held that the absence of entries in the books of account does not disentitle the claim for deduction of interest payable on Government loans. Therefore, the Court ruled in favor of the assessee, upholding the allowance of the claimed interest.

Issue 3: Consideration of Expenses Relating to Earlier Years
The final issue concerned the disallowance of Rs. 7,79,711 claimed by the assessee for expenses related to earlier years. The Assessing Officer and the Commissioner of Income-tax (Appeals) disallowed this claim. However, the Tribunal suggested considering the claim in the assessment year 1986-87. The High Court found no fault in the Tribunal's decision, stating that the claim should indeed be considered in the subsequent assessment year. Consequently, the Court answered all the questions in favor of the assessee and against the Revenue, with no order as to costs.