2023 (5) TMI 1172 - AT - Income Tax

Weighted deduction on R D expenditure claimed u/s 35(2AB) - Claim denied for want of requisite approval received from DSIR - HELD THAT - In the present case, no doubt, expenditure had been incurred on R D, however, the requisite approval u/s 35(2AB) was obtained from the prescribed authorities, as evident from the assessment order. No doubt, the assessee company had filed an application for seeking the extension of such approval. Such extension was denied by the prescribed authorities on account of fact that the assessee company had not adhered to the prescribed conditions. This denial of extension was communicated to the AO by the prescribed authorities. If the appellant is aggrieved by the denial of extension of approval u/s 35(2AB), the only course of action available to the appellant is to invoke writ jurisdiction of the Hon ble High Court. Thus, the material on record clearly indicates that there was no requisite approval as envisaged u/s 35(2AB), which is condition precedent for availing the benefit of deduction u/s 35(2AB) As settled principle of construction while construing the provisions of exemption, the provisions should be construed strictly as laid down by the Constitution Bench of the Hon ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs Dilip Kumar Company Others 2018 (7) TMI 1826 - SUPREME COURT - Decided against assessee.

Summary

Issues:
The appeal involves the question of whether the appellant is entitled to weighted deduction under section 35(2AB) of the Income Tax Act for the expenditure incurred on Research and Development (R&D) activities.

Summary:

Background:
The appellant, a company engaged in manufacturing carbon and alloy steels, filed an appeal against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2015-16. The Assessing Officer had denied the claim for weighted deduction on R&D expenditure under section 35(2AB) due to lack of requisite approval from the Department of Scientific and Industrial Research (DSIR).

Arguments:
The appellant contended that it satisfied the conditions specified under section 35(2AB) for claiming the weighted deduction. On the other hand, the Senior Departmental Representative supported the lower authorities' decision to sustain the addition.

Analysis:
The issue at hand was whether the appellant fulfilled the conditions for claiming the weighted deduction under section 35(2AB). The provision allows a deduction for expenditure on scientific research approved by the prescribed authority, in this case, the DSIR. The denial of extension of approval by the DSIR indicated the lack of requisite approval, which is a condition precedent for availing the deduction under section 35(2AB).

Precedents:
The decision of the Delhi High Court in Maruti Suzuki India Ltd. and Sandan Vikas (India) Ltd. cases, as well as the Gujarat High Court in Claris Lifesciences Ltd. case, were cited. These cases emphasized the importance of requisite approval for claiming the weighted deduction under section 35(2AB). The absence of such approval in the present case distinguished it from previous decisions where approval had been granted.

Conclusion:
The Tribunal upheld the order of the Commissioner of Income Tax (Appeals), stating that the denial of extension of approval by the DSIR rendered the appellant ineligible for the deduction under section 35(2AB). The Tribunal rejected the appellant's appeal, emphasizing the strict construction of exemption provisions and the necessity of complying with prescribed conditions for availing tax benefits.

Outcome:
The appeal filed by the appellant was dismissed, affirming the decision of the lower authorities to deny the weighted deduction under section 35(2AB) for R&D expenditure due to the lack of requisite approval from the DSIR.

This summary provides a detailed overview of the judgment, focusing on the issues raised, arguments presented, legal analysis conducted, relevant precedents cited, and the final decision rendered by the Tribunal.