2021 (3) TMI 1107 - AT - Income Tax

Weighted deduction u/s.35(2AB) - capital and revenue expenditure incurred on in-house R D facility - HELD THAT - As M/S. MAHINDRA ELECTRIC MOBILITY LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4 (1) (2) , BANGALORE. 2019 (1) TMI 20 - ITAT BANGALORE no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) as expenditure on scientific research. Deduction u/s.35(1)(i) and Sec.35(2AB) are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) and under Sec.35(2AB) are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which Sec.35(2AB) applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. Of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No.3CM as required by Rule 6 (5A) of the Rules. The deduction u/s.35(2AB) ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the Assessee and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee.

Summary

Issues:
Appeals against disallowance of expenditure under section 35(2AB) of the Income Tax Act, 1961 for assessment years 2013-14 & 2014-15.

Analysis:
1. The appeals were filed by the assessee challenging the disallowance of expenditure incurred on in-house Research & Development Facility under section 35(2AB) of the Income Tax Act, 1961. The issue pertained to the disallowance of weighted deduction claimed by the assessee for the assessment years 2013-14 & 2014-15.

2. The Assessing Officer disallowed a portion of the claimed deduction as the expenditure was not reported in Form 3CL issued by the Department of Scientific and Industrial Research (DSIR). The Ld. CIT(Appeals) confirmed the disallowance, leading to the appeals before the ITAT Pune.

3. The assessee contended that the expenditure was eligible for weighted deduction under section 35(2AB) and argued that the requirements of Rule 6(7A)(b) were not applicable for the relevant assessment years. The assessee cited previous favorable decisions in their own case for assessment years 2010-11, 2011-12, and 2012-13 where similar issues were decided in their favor.

4. The ITAT Pune referred to previous judgments in the assessee's own case and another case from the Bangalore Bench of the Tribunal, emphasizing that prior to 1.7.2016, Form 3CL had no legal sanctity. The Tribunal held that the deduction under section 35(2AB) should have been allowed as weighted deduction at 200% of the expenditure claimed by the assessee, rather than being restricted to 100%.

5. Based on the consistent view taken in favor of the assessee in previous cases and considering the legal precedents, the ITAT Pune allowed the appeals and directed the Assessing Officer to delete the disallowed amounts for both assessment years 2013-14 & 2014-15.

6. Consequently, the ITAT Pune partly allowed both appeals of the assessee for the assessment years 2013-14 & 2014-15, setting aside the disallowances made by the Ld. CIT(Appeals).

7. The judgment was pronounced on 23rd March 2021 by Shri Inturi Rama Rao, Accountant Member, and Shri Partha Sarathi Chaudhury, Judicial Member. The appeals were represented by Shri Krishna V Gujarathi for the assessee and Shri S.P Walimbe for the Revenue.