Weighted deduction under section 35(2AB) allowed on entire scientific research expenditure for pre-2016 assessment years

The ITAT Ahmedabad ruled in favor of the assessee regarding weighted deduction under section 35(2AB) for scientific research expenditure. The Department had restricted the deduction to amounts approved by DSIR in Form 3CL. The tribunal held that for assessment years 2014-15 and 2015-16, which were prior to the April 1, 2016 amendment, the prescribed authority was only required to approve research activities, not quantify eligible expenditure. Therefore, the assessee was entitled to claim weighted deduction on all expenditure incurred on in-house research and development facility as claimed in profit and loss accounts.

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Issues Involved:
1. Disallowance of claim of weighted deduction u/s 35(2AB) of the Income Tax Act, 1961.

Summary:

Issue 1: Disallowance of claim of weighted deduction u/s 35(2AB) of the Income Tax Act, 1961

The assessee filed appeals against the orders of the Commissioner of Income Tax (Appeals), NFAC, Delhi, concerning the disallowance of weighted deduction u/s 35(2AB) for the assessment years 2014-15 and 2015-16. The primary contention was that the Department restricted the weighted deduction to the expenditure approved by DSIR in Form 3CL, whereas the assessee claimed the deduction on the entire expenditure incurred on scientific research as per the profit and loss account.

The Tribunal noted that prior to the amendment effective from 1.4.2016, DSIR was not required to certify the quantum of expenditure incurred on in-house research and development in Form 3CL. The Tribunal agreed with the assessee's argument that for the years in question, the DSIR's certification of expenditure in Form 3CL was not relevant, and the entire expenditure incurred should be eligible for deduction.

The Tribunal examined the relevant provisions of section 35(2AB) and Rule 6 of the Income Tax Rules, 1962, and concluded that the law prior to 1.4.2016 did not mandate DSIR to quantify the expenditure eligible for weighted deduction. The Tribunal referenced various judgments supporting this interpretation and held that the Revenue erred in restricting the deduction based on DSIR's certification in Form 3CL.

Consequently, the Tribunal directed the Assessing Officer to allow the full benefit of the weighted deduction as claimed by the assessee in the profit and loss accounts, and the disallowance made for both years was directed to be deleted.

Conclusion:
The appeal of the assessee was allowed, and the disallowance of Rs. 23,45,490/- for AY 2014-15 and Rs. 27,31,502/- for AY 2015-16 u/s 35(2AB) was deleted.

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