Weighted deduction for approved R&D expenditure allowed before DSIR certificate date; Form 3CL did not cap the claim.

ITAT Bangalore held that once an in-house research and development facility is approved by the prescribed authority, weighted deduction under section 35(2AB) is available for eligible expenditure incurred on that approved facility, even for amounts spent before the date stated in Form 3CM. The approval was treated as sufficient recognition of the facility, so the deduction was allowed from 01/04/2013 and not confined to expenditure incurred after 27/11/2013. It also held that, for the relevant year, Form 3CL did not restrict the deduction to the quantified amount because that control became relevant only from 01/07/2016. The disallowance was therefore set aside and the full eligible deduction allowed.

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Issues: (i) Whether deduction under section 35(2AB) of the Income-tax Act, 1961 was allowable for expenditure incurred before the date mentioned in the DSIR approval, and (ii) whether the weighted deduction could be restricted only to the expenditure quantified in Form 3CL.

Issue (i): Whether deduction under section 35(2AB) of the Income-tax Act, 1961 was allowable for expenditure incurred before the date mentioned in the DSIR approval.

Analysis: The assessee's in-house research and development facility had been approved by the prescribed authority, and the application was made during the relevant previous year. The approval in Form 3CM was treated as evidencing recognition of the facility, and the governing principle applied was that the crucial requirement is the existence of approval or recognition of the R&D facility, not the cut-off date mentioned in the certificate. The approval was therefore held to relate to the eligible expenditure for the year, including expenditure incurred prior to 27/11/2013.

Conclusion: The deduction under section 35(2AB) was held allowable for expenditure incurred from 01/04/2013, and not confined only to expenditure incurred after 27/11/2013.

Issue (ii): Whether the weighted deduction could be restricted only to the expenditure quantified in Form 3CL.

Analysis: For the relevant assessment year, the legal effect of Form 3CL was considered limited, because the amendment making quantification in Form 3CL relevant for eligible expenditure operated only from 01/07/2016. Prior to that amendment, the absence of DSIR quantification in Form 3CL did not authorise curtailment of the deduction otherwise permissible on approved in-house R&D expenditure.

Conclusion: The deduction was not confined to the amount reflected in Form 3CL, and the Assessing Officer was directed to allow the weighted deduction on permissible capital and revenue expenditure incurred on the approved facility.

Final Conclusion: The assessee succeeded in full, and the disallowance was set aside by directing allowance of weighted deduction on the eligible in-house research and development expenditure.

Ratio Decidendi: Once an in-house research and development facility is approved by the prescribed authority, the assessee is entitled to weighted deduction on the eligible expenditure incurred on that facility, and prior to the 01/07/2016 amendment, Form 3CL did not control or restrict the quantum of such deduction.

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