Scientific research capital expenditure receives full deduction after the prescribed date, while separate processing adjustments require separate appellate challenge.

Capital expenditure on scientific research related to an assessee's business, incurred after 31 March 1967, is fully deductible in the relevant previous year under section 35(1)(iv) read with section 35(2)(ia); the pre-1967 instalment treatment does not apply. Separately, adjustments made through a return-processing intimation under section 143(1)(a) must be challenged through the appellate remedy available against that intimation. They cannot be contested in an appeal against a section 143(3) scrutiny assessment where that assessment neither considered nor altered those adjustments.

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Issues: (i) Whether capital expenditure incurred on scientific research after 31 March 1967 qualified for a 100% deduction; (ii) whether the challenge to adjustments made while processing the return was maintainable in an appeal against the scrutiny assessment order.

Issue (i): Whether capital expenditure incurred on scientific research after 31 March 1967 qualified for a 100% deduction.

Analysis: Section 35(1)(iv) permits deduction for capital expenditure on scientific research related to the assessee's business, subject to section 35(2). Section 35(2)(i) applies where the expenditure was incurred before 1 April 1967 and permits deduction in instalments. Section 35(2)(ia) specifically provides that where such expenditure was incurred after 31 March 1967, the whole capital expenditure incurred in the relevant previous year is deductible. The expenditure in question was therefore not restricted to one-fifth deduction.

Conclusion: The assessee was entitled to 100% deduction of the capital expenditure of Rs. 88,54,987 under section 35(1)(iv) read with section 35(2)(ia) of the Income-tax Act, 1961.

Issue (ii): Whether the challenge to adjustments made while processing the return was maintainable in an appeal against the scrutiny assessment order.

Analysis: The impugned appeal was against the order passed under section 143(3), whereas the disputed adjustments arose from the separate intimation under section 143(1)(a). The scrutiny assessment order neither discussed nor modified those adjustments. A separate appellate remedy was available against the intimation, and the issue did not arise from the assessment order under appeal.

Conclusion: The challenge to the adjustments made under section 143(1)(a) was not maintainable in the appeal against the order under section 143(3).

Final Conclusion: The restriction of the scientific-research deduction was removed, while the challenge concerning the separate processing adjustments was not entertained in the present appeal.

Ratio Decidendi: Capital expenditure on scientific research incurred after 31 March 1967 is fully deductible under section 35(2)(ia), and an adjustment arising from a separate section 143(1)(a) intimation cannot be challenged in an appeal directed against a section 143(3) assessment order.

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