2022 (1) TMI 327 - AT - Income Tax

Tax Tribunal Upholds Assessee's Deductions: R&D Expenses & Procedural Compliance Emphasized

Auto Ignition Ltd Versus Addl. CIT, Range-3, New Delhi And ACIT, Circle-3 (2), New Delhi Versus Auto Ignition Ltd

The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal. The assessee was granted a weighted deduction of Rs. 468.98 lakhs under ... Deduction u/s 35(2AB) - scientific research and development expenditure - denial of deduction as approving authority has not approved the research and development expenditure of the assessee approving authority has not approved the research and development expenditure of the assessee - HELD THAT:- Assessee has in house research and development Center which has been recognized and approved for deduction u/s 35(2AB) since FY 2004-05 as per CBDT letter dated 29.09.2004. The assessee has been continuously granted deduction up to Assessment Year 2013-14 We find that there is no such amendment made in the income tax to this effect for Assessment Year 2014-15 and therefore, same cannot be imputed in the Act. Further, w.e.f. 01.04.2016, the income tax Rules has been amended and Form No. 3CL has been introduced which is required to be uploaded along with return of income. Further, Form No. 3CL in para 3 is also required to state amount of expenditure claimed by the assessee by to be certified by “an accountant‟ but this applicable from 01.04.2016. In view of the above facts and perusal of the order of the ld CIT(A) we do not find any infirmity in the claim of the assessee for deduction u/s 35 (2AB) of scientific research and development expenditure amounting to ₹ 468.98 lakhs. - Decided in favour of assessee. Addition u/s 37(1) - Expenditure not eligible for weighted deduction u/s 35(2AB) - HELD THAT:- We find that such R&D expenditure though not eligible for weighted deduction u/s 35(2AB) but is allowable as deduction u/s 37(1) of the Act to the extent of amount of expenditure incurred by the assessee. The assessee should have been allowed deduction of above sum as normal allowable expenditure u/s 37 (1) of the act . The ld CIT(A) did not deal with this aspect. In view of this, we direct the ld AO to allow the assessee deduction u/s 37(1) of the Act at a sum of ₹ 8.41 lakhs. Accordingly, appeal of the assessee is allowed. Issues Involved1. Deduction under Section 35(2AB) of the Income Tax Act.2. Deduction under Section 37(1) of the Income Tax Act.Issue-wise Detailed Analysis1. Deduction under Section 35(2AB) of the Income Tax ActThe primary issue was whether the assessee was entitled to a weighted deduction under Section 35(2AB) for Research and Development (R&D) expenditure. The assessee, a company engaged in manufacturing auto electrical parts, claimed a weighted deduction of Rs. 9,54,80,025 under Section 35(2AB) for R&D expenses. The Assessing Officer (AO) disallowed this claim, citing discrepancies and procedural lapses, including the timing of Form 3CL submission and the inclusion of certain expenses.The AO noted that the R&D expenditure claimed was Rs. 4,77,40,012, while Form 3CL approved only Rs. 4,68,98,000. The AO also pointed out that the assessee did not furnish Annexure IV with the return of income and relied on a CAG report suggesting that Form 3CL should precede the filing of the return. Additionally, the AO observed that remuneration paid to a board member, included in the R&D expenditure, should not be considered for the deduction.The Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the assessee, stating that the R&D Centre was approved by the Department of Scientific and Industrial Research (DSIR) since 2004-05 and the approval was valid until 31.03.2014. The CIT(A) noted that all conditions specified in Section 35(2AB) and related rules were met, and the expenditure was approved by DSIR in Form 3CL. The CIT(A) directed the AO to allow the weighted deduction of Rs. 468.98 lakhs at 200%.Upon appeal, the Tribunal upheld the CIT(A)'s decision, noting that there was no legal requirement for Form 3CL to precede the filing of the return for the assessment year in question. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's appeal.2. Deduction under Section 37(1) of the Income Tax ActThe second issue involved the assessee's claim for a deduction of Rs. 8,42,000 under Section 37(1), which was not allowed under Section 35(2AB). The AO disallowed this amount, and the CIT(A) did not address it.The Tribunal found that while the assessee was not eligible for a weighted deduction under Section 35(2AB) for Rs. 8.41 lakhs, this amount should still be allowable as a normal business expenditure under Section 37(1). The Tribunal directed the AO to allow this deduction, thereby allowing the assessee's appeal.ConclusionThe Tribunal dismissed the revenue's appeal and allowed the assessee's appeal. The assessee was granted a weighted deduction of Rs. 468.98 lakhs under Section 35(2AB) and a normal deduction of Rs. 8.41 lakhs under Section 37(1). The judgment emphasized adherence to procedural requirements and statutory provisions for claiming deductions.