The Income Tax Appellate Authority at Chennai has held that, the disallowance made by the Assessing Officer (AO) and as confirmed by Commissioner of Income Tax (Appeals) [CIT(A)] is not sustainable in law and the same is liable to be deleted as the deductions are made for Research and Development Expenses of a new branch of business amounting to revenue expenditures.
The Tribunal Bench comprising V Durga Rao and Manoj Kumar Aggarwal observed that, the expenses incurred by the assessee-appellant, M/s Aban Infrastructure Ltd., majority of the expenditure consists of salary, professional fees, consumables, project fees, travelling expenses, repair & maintenance etc. which are predominantly revenue in nature and otherwise an allowable business deduction under Section 37(1) of the Income Tax Act, 1961.
It was further observed that, “It is undisputed fact that the assessee carries on an existing business and its business has already commenced. In this year, the assessee has sought to pursue a new product line and it is not a case that the assessee has not commenced the business.” In this regard, it was held that it is not a precondition that income must be derived from business to avail business expenses and expenditures to allow deduction under Section 37(1).
In regard to the deduction under Section 37(1) for scientific research, the order relied on by the revenue, DCIT V/s Bharat Biotech International Ltd (2014) was observed to be amended for the application in Section 37(1) in favour of the assessee. It was thus held that “the disallowance as made by Ld. AO and as confirmed by Ld. CIT(A) is not sustainable in law and the same is liable to be deleted.” Subsequently, the Assessing Officer (AO) was directed to recompute the income of the assessee, M/s Aban Infrastructure Ltd.
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