2024 (2) TMI 827 - AT - Income Tax

Deduction of research and development expenses claimed u/s 35(2AB) - weighted deduction - whether the expenditure claimed by the assessee is required to be approved by the DSIR? - HELD THAT - So far issue related to approval by the DSIR there is no quarrel in the year under appeal. The only dispute is whether the expenditure claimed by the assessee ought to have been allowed in totality dehors allowance of the expenditure restricted by the DSIR. We, in the light of the above decision of CLARIS LIFESCIENCES LTD. 2008 (8) TMI 579 - GUJARAT HIGH COURT direct the AO to verify the correctness of the claim of the actual expenses incurred by the assessee in respect of scientific research in-house research and development facility. If the claim of assessee is found to be correct he would delete the impugned disallowance of expenditure. The ground raised by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of deduction under Section 35(2AB) of the Income Tax Act, 1961.

Summary:

Disallowance of Deduction under Section 35(2AB):
The appellant, a company, filed an appeal against the order of the CIT(A)-22, New Delhi, which sustained the AO's disallowance of Rs. 9,61,259/- from the research and development expenses claimed under Section 35(2AB) of the Income Tax Act, 1961. The AO based this disallowance on the DSIR's approval of a weighted deduction of Rs. 1,98,98,000/-, leading to the disallowance of the excess amount claimed by the assessee.

Assessee's Argument:
The assessee's counsel argued that under identical facts in the assessment year 2013-14, the Tribunal had allowed the claim in ITA No. 8160/Del/2018. They contended that the amendment in the provision was brought later in the statute book.

Respondent's Argument:
The learned DR supported the impugned order, asserting that the law mandates that the weighted deduction under Section 35(2AB) is limited to the expenditure approved by the DSIR.

Tribunal's Findings:
The Tribunal noted that the CIT(A) dismissed the appeal based on the mandatory conditions in Section 35(2AB)(3) and 35(2AB)(4), which require an agreement with the prescribed authority and the submission of reports in a prescribed manner. The Tribunal referred to the precedent set by the Hon'ble Jurisdictional High Court in CIT vs Sandan Vikas (India) Ltd and other similar cases, which held that once the DSIR issues a certificate, the assessee is entitled to the weighted deduction for the expenditure incurred.

Conclusion:
The Tribunal directed the AO to verify the correctness of the actual expenses incurred by the assessee for the in-house research and development facility. If the claim is found correct, the AO should delete the impugned disallowance. The appeal was allowed for statistical purposes.