Tribunal rules on weighted deduction for R&D under Income Tax Act &D

Commissioner of Income Tax, Chennai. Versus M/s. TVS Electronics Limited

Commissioner of Income Tax, Chennai. Versus M/s. TVS Electronics Limited - [2019] 419 ITR 187 (Mad) Issues:
1. Allowability of weighted deduction under Section 35 (2AB) of the Income Tax Act.
2. Interpretation of approval requirement for weighted deduction under Section 35 (2AB).
3. Levy of interest under Section 234D of the Act on excess refund.
4. Application of Section 234D for interest on refund pre and post its insertion.

Issue 1: Allowability of Weighted Deduction under Section 35 (2AB):

The Revenue filed appeals challenging the Tribunal's decision allowing the Assessee's claim for weighted deduction under Section 35 (2AB) of the Income Tax Act for Assessment Year 2003-2004. The Revenue argued that the Assessee did not produce the necessary approval for scientific research, a mandatory condition for claiming the deduction. However, the Tribunal found that the Assessee had fulfilled all requirements for the deduction, even though specific approval for the assessment year was pending. The Tribunal held that the approval condition was substantially met, considering approvals for prior and subsequent periods. The delay in approval for the assessment year should not penalize the Assessee, especially when approvals for other periods were in place. Thus, the Tribunal ruled in favor of the Assessee, allowing the weighted deduction.

Issue 2: Interpretation of Approval Requirement for Weighted Deduction under Section 35 (2AB):

The Tribunal considered the argument that the approval for scientific research projects should be specific to the assessment year in question. However, the Tribunal noted that the facility and project had been approved, and the expenditure incurred on research and development (R&D) should be allowed for weighted deduction. The Tribunal referenced a precedent stating that once the facility is approved, the entire expenditure on R&D should be eligible for deduction, without restrictions based on the approval date. The Tribunal emphasized that the law does not provide for a cut-off date for eligibility of weighted deduction based on approval timing. Therefore, the Tribunal held that the Assessee was entitled to the deduction for the expenditure incurred on R&D facility development.

Issue 3: Levy of Interest under Section 234D on Excess Refund:

The Revenue raised the issue of levying interest under Section 234D on the excess refund made to the Assessee for Assessment Year 2003-2004. Referring to a previous judgment, the Revenue argued that interest should be applied if the regular assessment occurred after the amendment of Section 234D, even if the assessment period was before the amendment. However, the Tribunal did not agree with this interpretation. The Tribunal held that interest under Section 234D should be levied on the excess refund amount, considering the amendment date, and ruled in favor of the Revenue on this issue.

Issue 4: Application of Section 234D for Interest on Refund Pre and Post Its Insertion:

The Tribunal addressed the application of Section 234D for interest on refunds granted before and after its insertion. While the computation of interest depended on the appeal effect order, the Tribunal determined that the provisions of Section 234D were applicable for Assessment Year 2003-2004. Citing a previous decision, the Tribunal held that interest under Section 234D should be charged, supporting the Revenue's position on this matter. Consequently, the Appeals of the Revenue were allowed in part, with the Questions of Law 3 and 4 answered in favor of the Revenue and against the Assessee.

This detailed analysis of the judgment provides insights into the issues surrounding the allowability of weighted deduction, interpretation of approval requirements, levy of interest under Section 234D, and the application of interest on refunds pre and post its insertion.