2019 (11) TMI 639 - AT - Income Tax

Revision u/s 263 - assessee s claim of deduction u/s. 35(2AB) - view of CIT that while computing deduction u/s. 35(2AB) of the act, assessee should have reduced the contract Research Development income instead of contract Research Development expenditure - HELD THAT - While replying to this particular aspect raised by CIT in the show cause notice, assessee had specifically submitted that provision of section 35(2AB) speaks of Research Development expenditure and not income. To support such contention, the assessee has also cited the decision of the Tribunal in the case of ACIT vs. Wockhardt Ltd 2012 (5) TMI 823 - ITAT MUMBAI CIT has not countered the specific submissions of the assessee on this issue. Even, she has not denied the fact that as per the decision of the Tribunal in the case of ACIT vs. Wockhardt Ltd 2012 (5) TMI 823 - ITAT MUMBAI , only Research Development expenditure has to be reduced and not the income. By merely stating that the department has contested the decision of the Tribunal in the case of ACIT vs. Wockhardt Ltd (supra) by filing a reference in the Hon ble Bombay High Court, she has directed the Assessing Officer to net off the contract Research Development income in place of Research Development expenditure. In the aforestated premises, in our view, assessment order passed cannot be held to be erroneous and prejudicial to the interest of the Revenue when the deduction claimed u/s. 35(2AB) of the Act is not only in conformity with the statutory provisions but also in consonance with the decision of the Tribunal on the issue. In view of the aforesaid, we hold that the exercise of power u/s. 263 of the Act in the instant case is invalid hence, unsustainable. Accordingly, we set aside the impugned order of learned CIT passed u/s. 263 of the Act and restore the assessment order. The grounds are allowed.

Summary

Issues:
Assessment of weighted deduction u/s. 35(2AB) of the Act.

Analysis:
The appeal was against an order passed under section 263 of the Act for the assessment year 2012-13. The assessee, an Indian Company engaged in pharmaceutical products, filed its return declaring income. The assessment was completed, and the Assessing Officer assessed the total income under section 115JB of the Act due to lower tax on normal provisions. The issue arose when the learned CIT found an excess claim of Research & Development expenses due to not reducing contract Research & Development income while claiming deduction u/s. 35(2AB) of the Act. The CIT issued a notice u/s. 263 to revise the assessment order.

In response, the assessee argued that the claim of weighted deduction was as per statutory provisions and conditions. They contended that the deduction should be allowed based on Research & Development expenditure incurred, not reduced by income. The assessee cited relevant cases to support their stance. The CIT directed the AO to compute the deduction after reducing the contract Research & Development income.

During the appeal, the AR reiterated that all necessary details were provided during assessment, and the AO had allowed the deduction after due enquiry. They argued that the statutory provision did not require reducing income for weighted deduction. The AR also pointed out that the CIT did not identify any specific error in the AO's decision. The Tribunal noted that the CIT's view on reducing income for deduction u/s. 35(2AB) was not supported by the assessee's submissions or the Tribunal's decision in a similar case.

The Tribunal found that the assessment order was not erroneous as the deduction claimed was in line with statutory provisions and previous decisions. The CIT's exercise of power u/s. 263 was deemed invalid and unsustainable. Consequently, the Tribunal set aside the CIT's order and restored the assessment order, allowing the assessee's appeal.

In conclusion, the Tribunal ruled in favor of the assessee, holding that the exercise of power u/s. 263 was invalid, and the assessment order was restored.