Appeals partly allowed, issue remitted for fresh adjudication. Assessee granted chance to provide evidence.

The tribunal partly allowed the appeals for statistical purposes, remitting the issue of disallowance under Section 35(2AB) back to the Assessing Officer for fresh adjudication. The assessee was granted the opportunity to provide additional evidence to support their claim for deductions, particularly regarding the director's involvement in R&D activities. The tribunal directed the AO to re-adjudicate the issue after affording the assessee a due opportunity for a hearing.

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Issues Involved:
1. Charging of interest under Section 234B & 234C.
2. Initiation of penalty proceedings under Section 271(1)(c).
3. Disallowance of deductions under Section 35(2AB) for Assessment Years 2012-13 and 2013-14.

Detailed Analysis:

1. Charging of Interest under Section 234B & 234C:
The assessee contended that the Revenue Authorities erred in charging interest under Section 234B & 234C of the Income Tax Act. However, during the hearing, it was acknowledged that charging of interest is consequential in nature and does not require a specific finding. Consequently, this ground was rejected.

2. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee argued that the initiation of penalty proceedings under Section 271(1)(c) was premature. The tribunal agreed, stating that the assessee would have an independent opportunity to dispute any penalty levied under this section in the future. Hence, this ground was also rejected.

3. Disallowance of Deductions under Section 35(2AB):
The primary issue revolved around the disallowance of deductions claimed under Section 35(2AB) for research and development (R&D) expenditures. For Assessment Year 2012-13, the assessee claimed a deduction of Rs. 4,83,90,786, which included capital expenditure of Rs. 17,09,557. Similarly, for Assessment Year 2013-14, the claimed deduction was Rs. 705.86 lakhs. The Assessing Officer (AO) disallowed Rs. 48,79,636 for AY 2012-13 and Rs. 69.12 lakhs for AY 2013-14 based on the Department of Scientific and Industrial Research (DSIR) report, which did not approve the entire claimed expenditure.

The AO's findings were based on the auditor's report, which specified that certain expenditures, including those on outsourced R&D activities, market research, sales promotions, and payments to directors, were not eligible for deduction. The DSIR approved only part of the claimed revenue expenditure, leading to the disallowance.

The assessee's counsel argued that the salary paid to one of the directors, who was also a Chief Technology Officer with relevant professional qualifications, should not have been disallowed. The counsel cited decisions from the ITAT, Ahmedabad Bench, and ITAT, Pune Bench, which supported their claim that the DSIR's restriction on allowances was not justified.

The tribunal noted that the DSIR's restriction on allowances was not in accordance with the law prior to the amendment effective from 1st July 2016. However, the tribunal also observed that the assessee had not provided sufficient details regarding the director's role in the R&D activities either before the AO or the CIT(A). Consequently, the tribunal remitted the issue back to the AO for fresh adjudication, allowing the assessee to submit evidence demonstrating the director's involvement in R&D activities.

Conclusion:
The appeals were partly allowed for statistical purposes, with the tribunal remitting the issue of disallowance under Section 35(2AB) back to the AO for fresh adjudication. The assessee was granted the opportunity to provide additional evidence to support their claim for deductions. The tribunal directed the AO to re-adjudicate the issue after providing the assessee with a due opportunity for hearing.

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