2020 (1) TMI 397 - AT - Income Tax

Deduction u/s 35(2AB) - in-house research and development facilities - HELD THAT - Though, the assessee has produced a copy of Form 3CM before the AO, it has not attached any enclosure specifying a list of assessee s various in-house research and development facilities, etc. Though, the assessee filed its return of income with the Revenue for the assessment year 2015-16 on 15.10.2015, it has not filed the required audit report before the competent authority with DSIR on or before 30.09.2015, as required under the provisions. From the material available on record, it is clear that the assessee filed certain particulars before the competent authority with DSIR on 22.12.2017 only, i.e., after a long gap i.e. about 2 years 3 months after the due date and almost at the end of the assessment proceedings U/s.143(3) for the assessment year 2015-16, which was completed on 26.12.2017. In order to claim the exemption from payment of Income Tax, the assessee has to comply with the provisions of the Act as well as the Rules made there under and establish it in RAMAKRISHNA DEO. 1958 (10) TMI 9 - SUPREME COURT before the Income Tax Authorities. In this case, it is clear from the above facts and circumstances that the assessee has not laid the required material before the competent authorities in time and probably because of that they could not entertain/consider it, etc. Since the assessee has not complied with the provisions as required and has not laid the required material before the authorities concerned, the disallowance made is justified. The corresponding grounds of the assessee fail. Assessee s alternate claim that the impugned expenditure may be considered and allowed u/s.37 - We find merit in the assessee s claim. However, since the lower authorities have not examined this issue, we deem it fit to remit this issue back to the AO for a fresh examination. The assessee shall lay all materials in support of its contention before the AO and comply with the requirements of the AO in accordance with law. The Assessing Officer is also free to conduct appropriate enquiry as deemed fit, however, he shall furnish due opportunity to the assessee on the materials etc., to be used against the assessee and on due consideration of the assessee s clarification / explanation shall pass the order in accordance with law. Disallowances made U/s.37 towards travelling expenses and donation - HELD THAT - Since, the assessee has not laid any material in support of its contention either before the ld.CIT(A) or before us, we do not find any reason to interfere with the order of the ld.CIT(A). With regard to the disallowance of sales tax penalty, since the assessee has not laid any material to say that this disallowance is not warranted U/s.37, we confirm the order of the ld.CIT(A). The corresponding grounds of the assessee on these issues fail.

Summary

Issues:
- Disallowance of expenses under Section 37
- Claim for deduction under Section 35(2AB)
- Compliance with audit requirements for deduction under Section 35(2AB)

Analysis:

Issue 1: Disallowance of expenses under Section 37
The Assessing Officer disallowed various expenses claimed by the assessee under Section 37, including travelling expenses, donation, and sales tax penalty. The assessee contended that these expenses were incurred for business purposes and should be allowed. The Appellate Tribunal found that the assessee failed to provide sufficient evidence to support these claims, leading to the confirmation of the disallowances by the lower authorities. The Tribunal upheld the disallowances of travelling expenses, donation, and sales tax penalty under Section 37.

Issue 2: Claim for deduction under Section 35(2AB)
The assessee claimed a deduction under Section 35(2AB) for in-house research and development facilities. However, the Assessing Officer disallowed the claim due to non-compliance with the audit and reporting requirements specified under the Income Tax Rules. The Tribunal noted that the assessee had not submitted the necessary audit report before the competent authority within the prescribed timeline. As a result, the Tribunal upheld the disallowance of the deduction under Section 35(2AB) due to the assessee's failure to meet the statutory requirements.

Issue 3: Compliance with audit requirements for deduction under Section 35(2AB)
The Tribunal emphasized the importance of timely compliance with audit and reporting obligations for claiming deductions under Section 35(2AB). The assessee's delay in submitting the required documents to the competent authority resulted in the rejection of the deduction claim. The Tribunal highlighted that the assessee's failure to adhere to the statutory provisions and provide necessary material to the authorities led to the justifiable disallowance of the deduction. The Tribunal directed the assessee to comply with the legal requirements and present all relevant materials for a fresh examination by the Assessing Officer.

In conclusion, the Appellate Tribunal partially allowed the assessee's appeal for statistical purposes, remitting the issue of alternate claim under Section 37 for fresh examination while upholding the disallowances under Section 37 and Section 35(2AB) due to non-compliance with statutory requirements.