Assessee wins appeal on R&D and commission expenses disallowance.

The Tribunal allowed the appeal of the assessee, reversing the CIT(A)'s decisions on the disallowance of Research & Development expenses under Section 35(2AB) and the disallowance of commission payments under Section 40A(2)(b). The order was pronounced on 31-08-2021.

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Issues Involved:
1. Deduction of Research & Development expenses under Section 35(2AB).
2. Disallowance of commission paid to persons covered under Section 40A(2)(b).

Detailed Analysis:

Ground No. 1: Deduction of Research & Development expenses under Section 35(2AB)
During the assessment, the Assessing Officer (AO) noticed that the assessee claimed a deduction of Rs. 66,66,790 under Section 35(2AB). The AO pointed out that the assessee had produced a certificate from the DSIR dated 13th April 2015, which approved revenue expenditure of Rs. 28,10,000 and capital expenditure of Rs. 32,000 for the assessment year 2013-14. The AO restricted the claim of deduction to Rs. 56,84,000 (Rs. 56,20,000 for revenue expenditure and Rs. 64,000 for capital expenditure) as against the assessee's claim of Rs. 78,68,842. Consequently, the AO disallowed Rs. 21,84,842 and added it to the total income of the assessee.

The CIT(A) upheld the AO's decision. During the appellate proceedings, the assessee's counsel cited decisions from the ITAT Ahmedabad and Mumbai, arguing that the requirement for quantification of expenditure for claiming deduction was introduced only from 1st July 2016. The Tribunal referred to the case of Sun Pharmaceuticals Industries vs. Pr. CIT and other relevant cases, concluding that prior to the amendment effective from 1st April 2016, the quantification of expenditure was not required. The Tribunal found merit in the assessee's submission and allowed the claim of deduction, thereby reversing the CIT(A)'s decision.

Ground No. 2: Disallowance of commission paid to persons covered under Section 40A(2)(b)
The AO disallowed Rs. 7,50,000 of commission payments to Prakash Udeshi HUF, Ranjeet Sen HUF, and Sushanto Pramanik HUF, stating that the details provided by the assessee were of a general nature and did not establish the genuineness of the expenditure. The CIT(A) restricted the disallowance to Rs. 6,00,000, deleting the disallowance of Rs. 1,50,000 paid to Prakash Udeshi HUF.

During the appellate proceedings, the assessee provided specific details of services rendered by the parties, along with invoices, ledger accounts, and TDS details. The Tribunal noted that the AO did not conduct any further verification or investigation to disprove the assessee's claims. The Tribunal found that the AO had not demonstrated any material to disprove the genuineness of the commission payments. Therefore, the Tribunal concluded that the CIT(A)'s decision to sustain the disallowance was not justified and allowed the appeal of the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee on both grounds, reversing the CIT(A)'s decisions on the disallowance of Research & Development expenses under Section 35(2AB) and the disallowance of commission payments under Section 40A(2)(b). The order was pronounced in the open court on 31-08-2021.

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