2015 (4) TMI 1247 - AT - Income Tax

Tribunal grants appeal for R&D tax deduction, stresses procedural compliance

The Tribunal allowed the appeal, setting aside the disallowance of the deduction claimed under section 35(2AB) of the Income Tax Act. The decision ... Disallowance of deduction claimed u/s 35(2AB) - Assessee is involved into In-House Research & Development activities, which are undertaken at Pune center - Held that:- It is not the case of the revenue authorities that the assessee was not doing scientific research. It is a fact that the assessee was conducting research in its field earlier, is evident from the letter received from Mr. R.R. Abhyankar (Scientist G) reads as renewal, therefore, it means that the relevant approval had been received and when we read the preceding letter also, we find that it talks about renewal from 01.04.2010. In fact vide letter dated 09.01.2008 the nodal officer from the department of Scientific & Industrial Research had accorded the recognition upto 31.03.2010. However all these facts require verification. Hence, this issue is set aside to the file of the AO. Appeal as filed by the assessee is treated as allowed for statistical purposes. Issues:Disallowance of deduction u/s 35(2AB) of the Income Tax Act, 1961.Detailed Analysis:1. The main issue in this case revolves around the disallowance of the deduction claimed under section 35(2AB) of the Income Tax Act, 1961, which was initially disallowed by the Assessing Officer (AO) and subsequently upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].2. The assessee, engaged in providing computer-aided engineering solutions, claimed weighted deduction under section 35(2AB) for expenses incurred in In-House Research & Development activities, which were recognized by the Department of Scientific & Industrial Research, Ministry of Science & Technology, Government of India.3. The AO disallowed the deduction citing lack of evidence to establish in-house R&D activities resulting in creation of patents, and non-compliance with prescribed conditions and documentation such as forms 3CK and 3CL.4. The CIT(A) concurred with the AO's decision, emphasizing the necessity of furnishing form 3CM duly signed by the Secretary, DSIR, as a prerequisite for availing deduction u/s 35(2AB), which the assessee failed to provide.5. The assessee contended that the letter from Mr. R.R. Abhyankar only signified the renewal of recognition of the In-House R&D Unit and argued that strict interpretation of the approval process might defeat the legislative intent to promote scientific research and development.6. Citing the decision in a similar case, the assessee argued that if all other conditions were met, approval by a Nodal Officer on behalf of the Secretary, DSIR, should suffice, as the purpose of the provision is to encourage technical advancement through R&D.7. The Tribunal acknowledged the scientific research activities of the assessee but noted the need for verification regarding the approval process and renewal dates, setting aside the issue to be examined by the AO.8. Consequently, the appeal by the assessee was treated as allowed, pending further verification by the AO.In conclusion, the judgment highlights the importance of adhering to prescribed procedures and documentation for claiming deductions under section 35(2AB) of the Income Tax Act, emphasizing the need for proper verification and compliance with statutory requirements to avail tax benefits for research and development activities.