TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 32
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.... Officer noticed that the assessee has claimed deduction of Rs. 8,83,57,145/- on account of Research & Development expenditure u/s 35/35(2AB) of the Act. The Assessing Officer found that the said deduction has been claimed @ 150% of the total expenses claimed to be incurred under nomenclature weighted deduction. 4. The assessee was asked to justify its claim. The assessee filed a detailed reply vide submission dated 22.11.2013. The detailed submission in relation to the claim of weighted deduction did not find any favour with the Assessing Officer. The Assessing Officer proceeded by disallowing excess claim of deduction of Rs. 7.60 crores. The operative part of the assessment order reads as under: "After the perusal of the assessee's submissions it has been found that the assessee has claimed additional deduction u/s 35(2AB) on the R&D activities done by it. The deduction allowable u/s 35(2AB) of the IT Act requires certain conditions. These conditions have been enumerated in rule 7A of the IT rule which says that:- Approval of expenditure incurred on in house R&D facility by company under subsection (2AB) of section 35 shall be subject to the following conditions, namely:- ....
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....ientific research' in the country which will eventually lead to larger benefit of the society and nation. However, the assessee here is doing R&D purely for the purpose of increasing their sales by producing items that can be sold in domestic or overseas markets by bringing in changes in style, design or technology to invite more customers. In view of the above discussion the additional deduction u/s 35(2AB) I.T. Act, claimed by the assessee amounting to Rs. 7,60,64,206/- is being disallowed. Accordingly .deduction for R&D is worked out as: Deduction U/s 35 as per Tax Audit Report: Rs. 8,83,57,145/- Less .Allowable Capital expenditure U/s 35: Rs. 1,22,92,939/- Additional Weighted Deduction claimed: Rs. 7,60,64,206" 5. Proceeding further, the Assessing Officer found that the assessee has made provision for warranty at Rs. 3.92 crores which is debited in the profit and loss account. The assessee was asked to furnish the basis to compute the provisional amount and also asked to explain as to why the same should not be disallowed, being the expenses relating to unascertained liability and provisional in nature. 6. On receiving no plausible reply, the Assessing Officer ....
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....AB) and that the ITAT was in error in remanding this issue to the AO for a fresh decision". 12. The revenue preferred SLP before the Hon'ble Supreme Court and the Hon'ble Supreme Court in SLP Civil Diary No. 29548/2018 dismissed the SLP of the Revenue. Respectfully following the findings of the Hon'ble High Court of Delhi [supra] and the co-ordinate bench in ITA No. 2561/DEL/2013 read with the decision of the Hon'ble High Court of Delhi in ITA No. 136/2017, we decline to interfere with the findings of the CIT(A). Ground No. 1 is, accordingly, dismissed. 13. In so far as Ground No. 2 is concerned, we find that similar disallowances were made by the Assessing Officer in A.Ys 2003-04 to 2009-10 and in A.Y 2010-11. The disallowances were deleted by the CIT(A) and the revenue did not prefer any appeal till A.Y 2008-09. In A.Ys 2009-10 and 2010-11, dispute relating to similar disallowances travelled upto the Tribunal and the Tribunal has decided the issue in favour of the assessee and against the revenue in ITA No. 2561/DEL/2013 for A.Y 2009-10 and ITA No. 2228/DEL/2014 for A.Y 2010-11. The relevant findings of the co-ordinate bench in ITA No. 2228/DEL/2014 read as unde....
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.... found defective; that valve actuator being a sophisticated item no customer was prepared to buy a valve actuator without a warranty. Therefore, the warranty became an integral part of the sale price: in other words, the warranty stood attached to the sale price of the product. In this case, the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income tax Act, 1961. 11 ITA Nos2228 & 2268/Del./2014 The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the nu....