2015 (10) TMI 2254 - AT - Income Tax

Eligibility for deduction u/s.35(2AA) - expenditure incurred on scientific research - Held that - It is not the case of the AO that deduction cannot be allowed to the Assessee as the scientific research for which the Assessee incurred expenditure in question related to its business and therefore the deduction claimed cannot be allowed. It is not open for the revenue to set up a totally new case in its grounds of appeal which was never the case of the AO/CIT(A). Under clause (ii) to Sec.35(1) of the Act, any sum paid to approved scientific research association which has as its object the undertaking of scientific research or to an approved university, college or other institution to be used for scientific research is deductible. Unlike cl. (i) to Sec.35(1) of the Act, this clause does not lay down that the scientific research , for which the amount is paid should be related to the assessee s business. Therefore deduction u/s.35(1)(ii) of the Act has to be allowed whether the expenditure incurred towards scientific research is in connection with the Assessee s business or not. Whether the notification approving IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act is no longer valid? - Held that - Erstwhile Sec.35 of the Act got revived and remained in suspended animation for a short period. Since the erstwhile Sec.35 of the Act has always been part of the Act, the notification dated 10.12.1973 notifying IIT, Madras as an approved institution for the purpose of Sec.35(1)(ii) of the Act was valid at all point of time. Therefore the objection of the learned DR in this regard is not accepted. We also find force in the argument of the learned counsel for the Assessee that nowhere it is expressly provided that approval of IIT, Madras for the purpose of Sec.35(1)(ii) of the Act will no longer hold good. Sec.24 of the General Clause Act, 1897 refers to repeal of an Act and re-enactment with or without modification. Provisions of Sec.24 of the General Clauses Act, 1897 are applicable even when there is a statutory amendment without there being a repeal of an enactment and re-enactment in place of repealed law and the reliance placed by the learned counsel for the Assessee on the decision of the Hon ble Supreme Court in the case of Parle Biscuits (P) Ltd. Vs. State of Bihar (2004 (12) TMI 363 - SUPREME COURT OF INDIA ) for the above proposition, in our view, is acceptable and the said stand clearly supports the plea of the Assessee. - Decided against revenue.

Summary

Issues Involved:
1. Deduction under Section 35(2AA) of the Income Tax Act.
2. Deduction under Section 35(1)(ii) of the Income Tax Act.
3. Validity of the approval notification for IIT, Madras under Section 35(1)(ii).
4. Admissibility of claims not made in the original or revised return of income.

Detailed Analysis:

1. Deduction under Section 35(2AA) of the Income Tax Act:
The Assessee claimed a deduction of Rs. 1.43 Crores paid to IIT Chennai for scientific research under Section 35(2AA), which allows a deduction of 125% of the expenditure. However, this deduction requires approval from the prescribed authority, which the Assessee did not have at the time of filing the return. Consequently, the Assessee claimed only 100% of the amount pending approval.

2. Deduction under Section 35(1)(ii) of the Income Tax Act:
Section 35(1)(ii) allows a deduction of 125% for sums paid to approved scientific research associations or institutions. IIT Madras was approved under this section by a notification dated 10.12.1973. The Assessee argued that the payment to IIT Madras qualified for this deduction. The CIT(A) upheld the Assessee's claim, noting that all conditions for the deduction under Section 35(1)(ii) were met, despite the Assessee not making this claim in the original return.

3. Validity of the Approval Notification for IIT, Madras:
The Revenue contended that the notification approving IIT Madras under Section 35(1)(ii) was invalid because Section 35 was deleted by the Direct Tax Laws (Amendment) Act, 1987, and no new notification was issued after the section was restored by the Direct Tax Laws (Amendment) Act, 1989. However, the Tribunal found that the notification remained valid as the section was restored, and the approval continued to be effective under Section 24 of the General Clauses Act, 1897, which maintains the validity of notifications issued under repealed and re-enacted laws.

4. Admissibility of Claims Not Made in the Original or Revised Return of Income:
The Revenue argued that the Assessee could not claim the deduction under Section 35(1)(ii) because it was not included in the original or revised return, citing the Supreme Court's decision in Goetze India Ltd. v. CIT. However, the Tribunal clarified that while the Assessing Officer (AO) cannot entertain such claims without a revised return, the Tribunal itself has the authority to consider new claims. The Tribunal had remanded the issue to the AO for fresh consideration, thus validating the Assessee's claim.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decisions allowing the Assessee's claim for a 125% deduction under Section 35(1)(ii) and confirming the validity of the IIT Madras approval notification. The Tribunal also emphasized that claims not made in the original or revised return could still be entertained by appellate authorities, thus supporting the Assessee's position. The appeals by the Revenue were dismissed, and the orders of the CIT(A) were upheld.