2019 (5) TMI 1524 - HC - Income Tax

Court upholds disallowance of weighted deduction for scientific research expenditure under tax law

Commissioner of Income Tax Madurai. Versus M/s. Rajapalayam Mills Ltd.

The High Court dismissed the Revenue's Appeal challenging the disallowance of weighted deduction for scientific research expenditure. The Court upheld the ... Deduction u/s 35(2AB) - expenditure incurred by the Assessee on Scientific Research - HELD THAT:- There is no substance in the present Appeal, since the claim of weighted deduction at 1.5 times of the expenditure incurred by the Assessee on Scientific Research was not even decided against the Revenue by the Appellate Authorities, viz., the CIT(Appeals) and the Tribunal and therefore, there was no occasion for the Revenue to prefer any further appeal, as the expenditure was allowed only under Section 35( l)(i) of the Act which does not require any approval by the Competent Authority. Since the spending of the amount on Scientific Research itself was not even disputed by the Revenue, in our opinion, the Appellate Authorities have rightly allowed the claim u/s 35(1)(i). The Assessee has not preferred any Appeal against that finding and therefore, the question of approval by the Competent Authority for making such claim becomes irrelevant. No substantial question of law to be arising in the present Appeal. Issues:- Appeal filed by Revenue under Section 260-A of the Income Tax Act challenging the disallowance of weighted deduction for scientific research expenditure under Section 35(2AB).- Discrepancy between the deduction claimed by the Assessee under Section 35(2AB) and the approval status from the Competent Authority.- Tribunal's decision to uphold the order of the Commissioner of Income Tax (Appeals) allowing normal deduction under Section 35(1)(i) instead of weighted deduction under Section 35(2AB).- Questions of law raised by the Revenue regarding the Tribunal's decision on changing the deduction claim and granting relief under Section 35(1) without proper approval.Analysis:1. The Appeal was filed by the Revenue challenging the disallowance of weighted deduction for scientific research expenditure under Section 35(2AB) of the Income Tax Act. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) which allowed only normal deduction under Section 35(1)(i) as the project lacked approval from the Competent Authority for the weighted deduction.2. The Commissioner of Income Tax (Appeals) had earlier disallowed the Assessee's claim under Section 35(2AB) due to lack of approval from the prescribed authority. The Tribunal agreed with the Commissioner's decision, emphasizing that both Section 35(1) and Section 35(2AB) deal with scientific expenditure but differ in the rate of deduction, with Section 35(1) allowing normal deduction based on actual expenditure.3. The Revenue, despite no issue on the weighted deduction claim, appealed the decision. The High Court noted that the claim of weighted deduction was not rejected by the Appellate Authorities, and the expenditure was allowed only under Section 35(1)(i) which does not necessitate approval by the Competent Authority. Therefore, the Court found no substantial question of law in the Appeal.4. The High Court concluded that since the Revenue did not dispute the spending on Scientific Research and the Appellate Authorities correctly allowed the claim under Section 35(1)(i), there was no basis for the Revenue's appeal. The Court dismissed the Appeal, emphasizing that the approval by the Competent Authority for the claim became irrelevant in this context.5. In summary, the High Court dismissed the Revenue's Appeal, stating that the claim for weighted deduction was not rejected, and the Appellate Authorities rightly allowed the claim under Section 35(1)(i) without the need for approval. The Court found no merit in the Appeal and ordered its dismissal without costs.