Deduction u/s 35(2AB) for in-house Research and Development ...

Major tax disputes: R&D expenses, interest deductibility, capital loss, commission to non-residents, bad debt provision.

Case Laws     Income Tax

September 4, 2024

Deduction u/s 35(2AB) for in-house Research and Development (R&D) expenses was disallowed as the assessee failed to properly explain the basis of claim and reconcile the difference between the amount claimed and the expenditure approved by the Department of Scientific and Industrial Research (DSIR). The matter was remitted to the Assessing Officer to correctly verify the eligible expenditure without considering the DSIR-approved amount. The disallowance of interest expenses u/s 36(1)(iii) was deleted as the assessee had sufficient interest-free funds available from reserves and share premium, contrary to the Assessing Officer's presumption that only interest-bearing funds were utilized towards capital work-in-progress (CWIP). The disallowance of capital loss was upheld as the assessee failed to reconcile the difference in CWIP additions, which cannot be considered an actual capital loss eligible for deduction. The disallowance u/s 40(a)(ia) for commission paid to non-residents was set aside for the Commissioner of Income Tax (Appeals) to examine the merits, considering the assessee's contention that the non-residents rendered services outside India. The disallowance of provision for bad debts was upheld as the deduction u/s 36(1)(vii) requires the bad debt to be written off as.

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