2008 (6) TMI 237 - AT - Income Tax

Tribunal Decisions: Deductions clarified, additions upheld, disallowance deleted

The Tribunal directed the AO to recompute the deduction under Section 80JJAA, clarifying that the deduction should be available for all new regular ... Allowability Issues Involved:1. Sustaining of disallowance under Section 80JJAA of the IT Act, 1961.2. Deletion of addition under Section 35(1)(ii) of the IT Act.3. Deletion of disallowance under Section 35(2AB) of the IT Act.Issue 1: Sustaining of Disallowance under Section 80JJAA of the IT Act, 1961The primary issue pertains to the disallowance of Rs. 26,99,432 under Section 80JJAA. The assessee claimed a deduction of Rs. 52,75,173 under this section. The AO interpreted that additional wages mean wages paid to workmen in excess of 100 workmen employed during the year. The AO allowed a deduction for 136 new workmen out of 236 employed during the year. The CIT(A) upheld this view partially, allowing the deduction for 136 workmen but disallowing the deduction for the remaining 100.The assessee argued that the deduction should be available for all new regular workmen employed for more than 300 days, provided the increase is not less than 10% of the existing workmen. The Tribunal clarified that for an existing undertaking, the percentage increase in regular workmen should be compared to the total workmen employed, including casual and contract labor. The Tribunal found that the CIT(A) and AO incorrectly excluded 100 regular workmen from the deduction calculation. The Tribunal directed the AO to recompute the deduction, considering the correct interpretation of the law.Issue 2: Deletion of Addition under Section 35(1)(ii) of the IT ActThe second issue involves the deletion of an addition of Rs. 5,00,000 under Section 35(1)(ii). The assessee claimed a deduction for a payment made to M/s Talwar Research Foundation (TRF) for scientific research. The AO disallowed the deduction as TRF was not notified by the Central Government for the relevant period. The CIT(A) allowed the deduction, stating that the payment was for scientific research related to the assessee's business and that the research need not be conducted by the assessee itself.The Tribunal upheld the CIT(A)'s decision, noting that TRF was recognized by the Department of Scientific and Industrial Research (DSIR) and that the payment was related to scientific research connected to the assessee's business. The Tribunal found no infirmity in the CIT(A)'s order, allowing the deduction under Section 35(1)(i).Issue 3: Deletion of Disallowance under Section 35(2AB) of the IT ActThe third issue concerns the deletion of a disallowance of Rs. 7,72,25,725 under Section 35(2AB). The assessee claimed a weighted deduction for expenditure on in-house R&D. The AO disallowed the claim, citing the absence of a report in Form No. 3CL from the DSIR to the Director General of IT (Exemptions). The CIT(A) admitted additional evidence, including the DSIR's report certifying the research expenses, and allowed the deduction.The Tribunal noted that all conditions for the deduction under Section 35(2AB) were satisfied except for the submission of the report to the Director General of IT (Exemptions). The Tribunal found that the Revenue did not object to the admission of additional evidence and upheld the CIT(A)'s decision, allowing the deduction.Conclusion:The appeal filed by the assessee is partly allowed, and the appeal filed by the Revenue is dismissed.