Tribunal grants Assessee deductions under Sections 35(2AB) & 35(1)(ii), upholds 5% disallowance for business development.

The Tribunal allowed the Assessee's appeals for deductions under Sections 35(2AB) and 35(1)(ii), directing verification and allowance of claims. The 5% ad hoc disallowance of business development expenditure for 2006-07 was upheld, with the Revenue's appeal dismissed.

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Issues Involved:
1. Deduction under Section 35(2AB)
2. Deduction under Section 35(1)(ii)
3. Adhoc Disallowance of Business Development Expenditure

Detailed Analysis:

1. Deduction under Section 35(2AB):
The primary issue revolves around the claim of weighted deduction at 150% of amounts spent on scientific research under Section 35(2AB) for the assessment years 2005-06, 2006-07, and 2007-08. The Assessee claimed the deduction for scientific research expenditure, but the Assessing Officer (A.O.) disallowed the claims due to the absence of Form 3CM and 3CL issued by the Prescribed Authority and lack of approval from DSIR. The CIT(A) upheld the disallowance. The Assessee argued that they had obtained DSIR approval for their in-house R&D unit and were awaiting the necessary certificates. The Tribunal directed the A.O. to allow 100% of the actual expenditure and to grant the weighted deduction upon receipt of Form 3CM. The Tribunal also noted that if the deduction under Section 35(2AB) was not allowed, the expenditure could be considered under Section 37(1) as it was for business purposes.

2. Deduction under Section 35(1)(ii):
The Assessee claimed deductions for amounts paid to various universities and research centers for product development under Section 35(1). The A.O. disallowed the claims due to a lack of evidence that these institutions were approved for such deductions. The CIT(A) upheld the disallowance, but the Tribunal referred to previous decisions where similar expenditures were allowed. The Tribunal directed the A.O. to verify the evidence and allow the deduction under Section 35(1)(ii), or alternatively under Section 37(1) if the conditions were met.

3. Adhoc Disallowance of Business Development Expenditure:
In the assessment year 2006-07, the A.O. disallowed 10% of the business development expenditure on an ad hoc basis, citing that some items, particularly gifts, were not exclusively for business purposes. The CIT(A) reduced the disallowance to 5%. The Assessee contended that the entire expenditure was for business purposes, but the Tribunal upheld the 5% disallowance, considering it reasonable due to the nature and non-verifiability of certain claims.

Conclusion:
- The Tribunal allowed the Assessee's appeals for statistical purposes regarding the deductions under Sections 35(2AB) and 35(1)(ii), directing the A.O. to verify and allow the claims as per the provisions.
- The Tribunal upheld the 5% ad hoc disallowance of business development expenditure for the assessment year 2006-07.
- The Revenue's appeal was dismissed.

Order Pronounced:
The order was pronounced in the open court on 28.05.2014.

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