2023 (12) TMI 496 - AT - Income Tax

Excess claim of deduction u/s 35(2AB) - partial disallowance by the ld. AO in the re-assessment - As submitted although in the said approval letter, the R D facility was approved for the purpose of section 35(2AB) from 20.11.2012 to 31.3.2015, yet it did not assign any reason for curtailing the period from 1.4.2012 to 19.11.2012 - no reply was received from DSIR when seeked reason for curtailing approval - as submitted that once a R D facility is approved by DSIR, then the expenditure incurred thereon would be eligible for weighted deduction u/s 35(2AB) of the Act for the whole year irrespective of the fact that the approval was granted only from the period commencing from 20.11.2012 onwards - HELD THAT - As decided in SANDAN VIKAS (INDIA) LTD. 2011 (2) TMI 66 - DELHI HIGH COURT The provisions nowhere suggest or imply that research and development facility is to be approved from a particular date and, in other words, it is nowhere suggested that date of approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. Tribunal has, therefore, come to the conclusion that on plain reading of section itself, the assessee is entitled to weighted deduction on expenditure so incurred by the assessee for development of facility.Tribunal has also considered Rule 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R D facility has to be allowed for weighted deduction as provided by Section 35(2AB). No scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under Section 35(2AB) of the Act by the assessee. Thus we hold that the assessee would be entitled for deduction u/s 35(2AB) of the Act for the expenditure incurred from 1.4.2012 to 31.3.2013. Assessee appeal allowed.

Summary

Issues involved:
The judgment involves the disallowance of an amount claimed as a deduction under section 35(2AB) of the Income Tax Act, 1961.

Issue 1: Additional Ground Not Admitted
The appellant raised an additional ground in the appeal, but later decided not to press it. The Tribunal dismissed the additional ground as not admitted due to lack of arguments in its support.

Issue 2: Disallowance of Deduction under Section 35(2AB)
The main issue in the appeal was whether the disallowance of an amount claimed as a deduction under section 35(2AB) of the Act was justified. The appellant, engaged in manufacturing auto parts, had applied for recognition of in-house research and development (R&D) facility, which was approved by the Department of Scientific and Industrial Research (DSIR). The appellant claimed a deduction for the total expenditure incurred on R&D, but the assessing officer restricted the deduction. The Tribunal examined the expenditure incurred on capital and revenue accounts and the approval granted by DSIR.

Decision and Reasoning
The Tribunal found that once a R&D facility is approved by DSIR, the expenditure incurred on it is eligible for weighted deduction under section 35(2AB) for the whole year. Citing precedents and judicial decisions, including the Gujarat High Court and other High Courts, the Tribunal held that the appellant was entitled to claim the deduction for the expenditure incurred during the relevant period. The Tribunal allowed the appellant's appeal on merits, granting the deduction for the expenditure from 1.4.2012 to 31.3.2013. As a result, the other grounds challenging the validity of reassessment were not addressed. The appeal was partly allowed in favor of the appellant.

This summary provides a detailed breakdown of the issues involved in the legal judgment and the Tribunal's decision on each issue.