2024 (12) TMI 851 - AT - Income Tax

DSIR quantification not mandatory for section 35(2AB) deduction on scientific research expenditure before April 2016

ITAT Ahmedabad ruled in favor of the assessee regarding disallowance under section 35(2AB) for scientific research expenditure on in-house R&D ... Disallowance u/s. 35(2AB) - expenditure incurred on scientific research on in-house research and development facility as approved by the prescribed authority - difference between the revenue expenditure incurred by the appellant and that as approved by the DSIR for claiming weighed deduction - HELD THAT:- The provision of section 35(2AB) was amended w.e.f. 01.04.2016 whereby the quantum of eligible expenditure incurred on inhouse research and development facility was required to be quantified by the prescribed authority i.e. DSIR. Prior to 01-04-2016, there was no such requirement for quantification of the eligible expenditure by the DSIR for claiming the deduction. Merely because DSIR had quantified such expenditure in the current year, which is prior to 01-04-2016, the same was not binding on the revenue authorities. Revenue was not correct in restricting the deduction u/s. 35(2AB) of the Act on the basis of the amount quantified by the DSIR in their approval. Disallowance u/s. 35(2AB) of the Act as upheld by the ld. CIT(A) was not in accordance with the provisions of law. Therefore, assessee is eligible for deduction @ 200% of the actual expenditure incurred on scientific research on in-house research and development facility, u/s. 35(2AB) of the Act. Decided in favour of assessee. Issues:Disallowance u/s. 35(2AB) of the Income Tax Act for assessment years 2013-14 & 2017-18.Analysis:For the assessment year 2013-14, the assessee appealed against the disallowance u/s. 35(2AB) of the Act. The Assessing Officer disallowed the excess deduction claimed by the assessee, which was upheld by the CIT(A). The assessee contended that the entire expenditure on the research facility approved by DSIR should be eligible for deduction u/s. 35(2AB). The ITAT analyzed the provisions and previous decisions, concluding that the Revenue erred in restricting the deduction based on DSIR's quantification. The ITAT allowed the appeal, directing the full deduction claimed by the assessee.In the case of the assessment year 2017-18, the assessee appealed against the CIT(A)'s decision regarding weighted deduction for R&D facility expenditure and clinical trial expenditure. However, during the hearing, the assessee decided to withdraw the appeal as the CIT(A) had deleted the total addition made by the Assessing Officer. The ITAT dismissed the appeal as withdrawn.In summary, the ITAT allowed the appeal for the assessment year 2013-14, ruling in favor of the assessee regarding the disallowance u/s. 35(2AB). However, the appeal for the assessment year 2017-18 was dismissed as withdrawn by the assessee.