The Income Tax Appellate Tribunal (ITAT), New Delhi grants relief to Ecocat India Pvt Limited by allowing tax deduction toward in-house research and developments.
The company is engaged in developing suitable and contemporary technologies to meet the various emissions norms as per International Standards from its own R and D set-up. During the year under consideration in its computation of income, the assessee has added R&D expenses amounting to Rs. 3,85,19,630/- and deducted R&D allowable expenses amounting to Rs. 13,37,72,569/-.
The assessee through its Counsel, K. Sampath submitted before the AO that as per the provisions of section 35(2AB) of the Act weighted deduction of 150% to be allowed for expenditure (both capital and revenue) incurred on in-house research and developments by companies where such facilities are approved by the Department of Scientific & Industrial Research, Ministry of Science and Technology, Government of India.
In support of its contention, the assessee has enclosed the copy of recognition granted by DSIR and application in support of approval for expenses Form 3CM. Since the approval for the expenses is not received from DSIR in Form 3CL till the finalization of the assessment, therefore assessee has made claim u/s 35(1) at Rs. 6,82,77 ,226/- and made a request for net disallowance of Rs.6,54,95,343/- being the difference of deduction u/s 35(2AB) originally claimed and the fresh claim u/s 35(1). Since, the assessee has made a fresh claim vide letter dated 22.01.2016, no revised return was filed and approval from DSIR was not received, therefore, the AO has disallowed the claim of deduction u/s 35(2AB) of Rs. 13 ,37,72,569/- and added it back to the taxable income of the assessee.
Later qua form 3CL, the DSIR approved the claim for weighted deduction of capital expenditure while that for revenue expenditure was declined. The company, however, insisted that the revenue expenses as incurred should be allowed to it as deduction u/s 35(1) / 37(1) of the Act. On appeal, the CIT(A) held that the assessee is not entitled to claim the weighted deduction at Rs.3,85,19,630/- as it is not approved from DSIR in approval granted in Form 3CL and confirmed an amount of Rs.3,85,19,630/- and balance the addition of Rs.9,52,52,939/- was deleted.
The Bench consisting of Dr. B. R. R. Kumar, Accountant Member, and Yogesh Kumar the US, Judicial Member observed that “In view of the approval for capital expenses as granted by the DSIR, the claim as allowed by the CIT(A) and hence the same cannot be faulted. The claim for revenue expenses is required to be allowed even otherwise in terms of the regular provisions of the Income Tax Act.”
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