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2013 (8) TMI 762 - AT - Income TaxDeduction u/s 35(2AB) - Weighted deduction - expenditure on R & D facilities - whether CIT(A) erred in restricting disallowance of the expenditure on R&D to 50% from 150% made by the AO. - The assessee contended that the Assessing Officer disallowed the claim u/s 35(2AB) without correspondingly allowing the revenue expenditure which was added to the computation of income, which tantamounts to double addition - Held that - matter remanded back to the file of the AO to grant weighted deduction u/s 35(2AB). The balance expenditure if any not approved by the DSIR will have to be considered for deduction under section 35(1) or under normal provisions of the Act. The expenditure has been incurred by the R & D facility of the assessee approved by the Government of India. Merely because part of the expenditure incurred by the approved R & D facilities is not considered for weighted deduction under Section 35(2AB) would not render that expenditure is not towards R & D or not for the purposes of the business. Allowability of such expenditure u/s 35(1) or under other appropriate provisions of the Act will have to be considered. - Decided against Revenue.
Issues Involved:
1. Deduction under section 35(2AB) of the Income Tax Act. 2. Disallowance on account of deferment of sales tax. Issue-wise Detailed Analysis: 1. Deduction under Section 35(2AB) of the Income Tax Act: Background: The assessee company, engaged in manufacturing chemicals, cellulose powder, and allied products, claimed a weighted deduction under section 35(2AB) for expenditure on Research and Development (R&D) activities. The assessee incurred an expenditure of Rs. 1,50,44,807/- and claimed a weighted deduction of Rs. 2,25,67,212/-. The Assessing Officer (AO) disallowed the entire claim due to the non-furnishing of Form 3CM and Form 3CL. CIT(A) Decision: The CIT(A) noted that Form 3CM (order of approval) and Form 3CL (certificate of expenditure) are issued with delays by the Department of Scientific and Industrial Research (DSIR). The CIT(A) allowed a 100% deduction, with a provision that upon receipt of Form 3CL, the assessee would be entitled to a 150% weighted deduction. ITAT Decision: The ITAT referenced a similar case (Additional CIT Vs. M/s Bhagiradha Chemicals & Industries Ltd.) where the deduction was allowed under section 35(1) due to the recognized R&D center. The ITAT upheld the CIT(A)'s order, allowing 100% deduction and setting aside the issue to the AO for granting weighted deduction under section 35(2AB) upon receipt of the DSIR certificate. Subsequent Appeals (AY 2007-08, 2008-09, 2009-10): The same issue arose in subsequent assessment years with the assessee incurring R&D expenditures and claiming deductions under section 35(2AB). The AO disallowed these claims due to the pending Form 3CL. The CIT(A) reiterated that the assessee had met all requirements and allowed the deductions. The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeals for these years as well. 2. Disallowance on Account of Deferment of Sales Tax: Background: The AO noticed that the company availed sales tax benefits of Rs. 172.70 lakhs and brought this amount to tax due to the lack of explanation for Rs. 172.40 lakhs. CIT(A) Decision: The CIT(A) held that sales tax deferment, treated as a loan repayable at a future date, loses its character as revenue receipt and becomes a capital liability. The CIT(A) deleted the addition made by the AO, treating the receipts as capital receipts. ITAT Decision: The ITAT found that the AO had not considered the issue adequately due to the lack of furnished particulars. Therefore, the ITAT set aside the issue to the AO for fresh examination, ensuring a reasonable opportunity for the assessee to present their case. Conclusion: The ITAT dismissed the revenue's appeals regarding the deduction under section 35(2AB) for all assessment years under consideration. The issue of disallowance on account of deferment of sales tax was set aside for fresh examination by the AO. The appeals were pronounced dismissed in open court on 15/07/2013.
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