R&D deduction allowed from DSIR approval date, not receipt date under Section 35(2AB)

ITAT Delhi held that the assessee was eligible for deduction under Section 35(2AB) for R&D expenses from 01.07.2008, the date of DSIR approval, rather than from 09.03.2009 when the approval letter was received. The tribunal deleted the addition under Section 14A as no interest-bearing funds were utilized for investments. Bad debts acquired from predecessor through demerger were allowed as deduction since corresponding amounts were offered to tax by the predecessor company. Training expenses for commercial vehicle business were held allowable in entirety as business expenditure under Section 37(1), rejecting AO's apportionment over three years. Revenue appeal was dismissed.

---

---

Issues Involved:
1. Deduction of Capital Expenditure on Research and Development (R&D)
2. Addition under Section 14A
3. Disallowance of Expenses
4. Disallowance of Bad Debts
5. Disallowance of Training Expenses

Detailed Analysis:

1. Deduction of Capital Expenditure on R&D:
The assessee, a joint venture between AB Volvo and Eicher Motors Limited (EML), claimed a weighted deduction under Section 35(2AB) for scientific research expenses incurred at its in-house R&D facility. The Assessing Officer (AO) disallowed this deduction on the grounds that the approval under Section 35(2AB) was granted from 09.03.2009 only. The AO argued that the benefit could not be extended to expenses incurred prior to this date. The CIT(A) allowed the deduction, relying on the decision of the Gujarat High Court in Claris Life Sciences Ltd., which stated that the date of recognition was not a condition precedent for claiming the deduction. The Tribunal upheld the CIT(A)'s decision, noting that the R&D facility had been recognized earlier in the name of EML, and the approval was merely a continuation in the name of the assessee. The Tribunal directed the assessee to submit details of capital and revenue expenditure for the period from 01.07.2008 to 31.03.2009 to avail the correct deduction.

2. Addition under Section 14A:
The AO disallowed Rs.2,34,335/- under Section 14A read with Rule 8D(iii) for earning exempt dividend income. The assessee argued that the investments in mutual funds were made out of surplus balances and no interest-bearing funds were utilized. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that the revenue could not prove any expenses incurred for earning the dividend.

3. Disallowance of Expenses:
The assessee acquired business undertaking from Volvo India Pvt. Ltd. (VIPL) through a scheme of demerger and claimed deductions for provisions on account of inventory obsolescence, service charges, and warranty. The AO disallowed these deductions, stating that the assessee did not furnish proof of payment or the ITRs of VIPL. The CIT(A) allowed the deductions after verifying the documents and ITRs. The Tribunal upheld the CIT(A)'s decision, noting that the facts were verified and no legal issue was involved.

4. Disallowance of Bad Debts:
The assessee claimed bad debts pertaining to the CV business acquired from EML. The AO disallowed the amount, stating that it was not offered to tax by the assessee. The CIT(A) allowed the deduction, noting that the corresponding amount was offered as income by the predecessor company. The Tribunal upheld this decision, relying on the Supreme Court's judgment in CIT vs. T.V. Rao, which allowed bad debts written off by a successor in business.

5. Disallowance of Training Expenses:
The assessee claimed expenses on account of "service training school" under selling and distribution expenses. The AO disallowed 1/3rd of the expenses, treating them as capital in nature. The CIT(A) allowed the full deduction, stating that the expenses were for training employees and were ongoing in nature. The Tribunal upheld this decision, noting that the training expenses were a business necessity and could not be treated as capital expenditure. The Tribunal also cited the Supreme Court's judgment in Taparia Tools Ltd. vs. JCIT on deferred revenue expenditure.

Conclusion:
The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on all grounds. The assessee was granted deductions for R&D expenditure, expenses under Section 14A, provisions on account of inventory obsolescence, service charges, and warranty, bad debts, and training expenses. The Tribunal directed the assessee to submit details of capital and revenue expenditure for the period from 01.07.2008 to 31.03.2009 to avail the correct deduction under Section 35(2AB).

---