DSIR funds qualify as soft loan not grant-in-aid, weighted deduction under section 35(2AB) allowed

ITAT Visakhapatnam allowed the assessee's appeal regarding disallowance of weighted deduction u/s 35(2AB). The AO had treated funds received from DSIR as grant-in-aid, disqualifying it from weighted deduction benefits. However, ITAT held that the amount constituted a soft loan repayable in five equal instalments, not grant-in-aid. The tribunal noted identical terms in previous assessment years where Ministry of Science and Technology confirmed the nature as soft loan, assessee's treatment as unsecured loan in financial statements, and TDS deduction on interest payments. ITAT directed AO to delete the disallowance.

---

---

Issues:
Appeal against order of Commissioner of Income Tax (Appeals) for A.Y. 2012-13 & 2013-14 regarding disallowance of weighted deduction under section 35(2AB) of the Income Tax Act, 1961.

Analysis:
For A.Y. 2012-13, the assessee, engaged in the production and sale of equipment, claimed weighted deduction under section 35(2AB) for R&D expenses. The Assessing Officer disallowed the excess claim after finding discrepancies in the agreement with DSIR and grant received. The CIT(A) upheld the disallowance, considering the grant as a loan. Assessee appealed, arguing the grant was a soft loan repayable in instalments. The ITAT allowed the appeal, noting the earlier acceptance of a similar loan and the categorization as unsecured loans in financial statements. The ITAT held the grant was a soft loan, eligible for deduction, directing the AO to delete the disallowance.

For A.Y. 2013-14, the issues and facts were identical to A.Y. 2012-13. The ITAT applied the same reasoning and allowed the appeal.

In conclusion, both appeals by the assessee were allowed, with the ITAT directing the deletion of the disallowance of weighted deduction under section 35(2AB) for both assessment years.

---