ITAT Pune rules in favor of appellant, deleting disallowance under section 14A & allowing weighted deductions under section 35(2AB)

The ITAT PUNE ruled in favor of the appellant for assessment years 2013-14 & 2014-15. The disallowance under section 14A was deleted for both years as the AO failed to justify why the appellant's apportionment was incorrect before applying Rule 8D. Additionally, the Tribunal allowed weighted deductions under section 35(2AB) for the full R&D expenditure incurred by the appellant, emphasizing compliance with pre-amendment conditions.

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Issues Involved:
1. Disallowance under section 14A of the Income-tax Act, 1961 for assessment years 2013-14 & 2014-15.
2. Disallowance of weighted deduction under section 35(2AB) of the Act for both assessment years.

Issue 1: Disallowance under section 14A for A.Y. 2013-14:
The appellant contested the addition of &8377; 49,95,140 made by the Assessing Officer (AO) under section 14A of the Income-tax Act, 1961. The AO computed the disallowance under Rule 8D, despite the appellant offering a disallowance of &8377; 10.00 lakh. The Appellate Tribunal observed that the AO failed to record satisfaction before proceeding with the disallowance, as mandated by the law. Citing the Supreme Court's ruling, the Tribunal held that the AO must justify why the appellant's apportionment was incorrect before applying Rule 8D. Consequently, the Tribunal ordered the deletion of the sustained disallowance. Additionally, the Tribunal clarified that no disallowance under section 14A can be made in the computation of book profit under section 115JB of the Act.

Issue 2: Disallowance of weighted deduction under section 35(2AB) for A.Y. 2013-14:
The appellant challenged the disallowance of weighted deduction amounting to &8377; 71,35,914 under section 35(2AB) of the Act. The AO disallowed the deduction based on the DSIR's reduced approval of R&D expenses. The Tribunal noted the requirements under Rule 6(7A) and the relevant Form 3CL. It highlighted the amendment effective from 01-07-2016, which necessitated year-to-year approval by DSIR for weighted deduction. Since the appellant fulfilled all conditions in the pre-amendment period, the Tribunal held that the entire R&D expenditure qualifies for weighted deduction, irrespective of DSIR's approval. Consequently, the Tribunal allowed the ground against the disallowance.

Issue 3: Disallowance under section 14A for A.Y. 2014-15:
For A.Y. 2014-15, the appellant contested the disallowance of &8377; 74,40,373 under section 14A of the Act. The Tribunal noted similarities with the preceding year and ordered the deletion of the disallowance, following the same reasoning as in A.Y. 2013-14. The Tribunal reiterated that no addition can be made under section 14A in the computation of income under section 115JB.

Issue 4: Disallowance of weighted deduction under section 35(2AB) for A.Y. 2014-15:
Similar to A.Y. 2013-14, the appellant challenged the disallowance of weighted deduction under section 35(2AB). The Tribunal, consistent with its decision for the prior year, allowed the ground, emphasizing that the appellant is entitled to weighted deduction for the full R&D expenditure incurred.

In conclusion, the Appellate Tribunal ITAT PUNE ruled in favor of the appellant for both assessment years, directing the deletion of disallowances under section 14A and allowing weighted deductions under section 35(2AB) based on the specific legal interpretations and factual circumstances presented in the cases.

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