Assessee gets regular deduction under section 35(1) for R&D expenditure despite weighted deduction denial under section 35(2AB)

ITAT Visakhapatnam allowed the appeal regarding disallowance of weighted deduction under section 35(2AB). The assessee claimed Rs. 22.68 lakhs for in-house R&D facility expenditure, certified by Ministry of Science and Technology in Form 3CL. Although the Revenue disputed the weighted deduction due to research activity location discrepancy, ITAT directed the AO to allow the actual expenditure as regular deduction under section 35(1), noting the amount was undisputed and properly certified by the government ministry.

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Issues involved:
The judgment involves the disallowance of weighted deduction claimed under section 35(2AB) of the Income Tax Act, 1961 for the assessment years 2005-06 and 2007-08, along with the denial of R&D expenditure deduction.

Issue 1: Disallowance of weighted deduction for AY 2005-06:
The assessee, a company in the steel industry, claimed weighted deduction under section 35(2AB) in its return of income for AY 2005-06. The Assessing Officer (AO) rejected the claim, leading to an appeal before the Commissioner of Income Tax (Appeals) who partly allowed it. The appellant further appealed to the Tribunal, challenging the disallowance. The Tribunal considered the Ministry of Science and Technology's approval of the research activities and directed the AO to allow the actual expenditure incurred for in-house R&D facility, as certified by the Ministry, amounting to Rs. 22.68 Lakhs. Consequently, the grounds raised by the assessee were allowed, leading to the appeal being allowed in favor of the assessee.

Issue 2: Disallowance of weighted deduction for AY 2007-08:
In the appeal for AY 2007-08, similar grounds were raised regarding the disallowance of weighted deduction under section 35(2AB). The Tribunal, applying its decision from the AY 2005-06 appeal, allowed the grounds raised by the assessee for AY 2007-08 as well. The Tribunal directed the AO to allow the actual expenditure incurred for in-house R&D facility, leading to the appeal being allowed in favor of the assessee.

Separate Judgment by Judges:
The judgment was delivered by SHRI DUVVURU RL REDDY, HON'BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON'BLE ACCOUNTANT MEMBER.

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