The Income Tax Appellate Tribunal (ITAT), Bangalore Bench allowed the deduction for expenditure incurred on research and development.
The Assessee, Shilpa Medicare has filed the appeal against the order relating to AY 2011-12. The issue that arose for consideration in the appeal by the assessee for AY 2011-12 was with regard to the allowability of the assessee for weighted deduction u/s 35(2AB) of the Income Tax Act 1961 (the Act).
Similar issues arose for consideration in the Assessee’s appeal for AY 2010-11 also in ITA No.1351/Bang/2015. The appeals for AY 2010-11 and 2011-12 were heard together and a common order was passed by the Tribunal.
The provisions of Sec. 35(2AB) of the Act, deals with a cases where a company engaged in the business of manufacture or production of any article or thing incurs any expenditure on scientific research on in-house research and development facility as approved by the prescribed authority, then there shall be allowed a deduction of some equal to 150% of such expenses incurred by the assessee for in-house research and development facilities. For this purpose, the prescribed authority is Secretary, DSIR, Ministry of Science and Technology, Government of India.
The coram headed by the Vice President, N.V. Vasudevan clarified that in order to claim the benefit of weighted deduction u/s 35(2AB) of the Act, the assessee should fulfil two conditions.
Firstly, there should be an in-house research and development facility and such facilities should be recognized / approved by the competent authority.
Secondly, the competent authority for this purpose has been defined as the secretary, DSIR, Ministry of Science and Technology, Govt. of India, who has approved the facility by his recognition dated January 19, 2011.
The ITAT noted that the assessee was granted recognition of Assessee’s in house R&D unit granted by the Government of India, Ministry of Science and Technology on on 19th January, 2011.
Therefore, the ITAT held that for AY 2011-12, the Assessee was entitled to deduction under section 35(2AB) of the Act. The date of application as May 12, 2011 as mentioned in the approval in Form No.3CM was the date on which the application for issue of Form No.3CM was made. The application for issue of Form No.3CM is not relevant for allowing deduction under section 35(2AB) of the Act. Form 3CM quantifies the expenditure incurred for carrying out scientific research.
“The assessee has to make an application for approval in prescribed form 3CK for issue of Form No.3CM and also filed necessary evidence including details of expenditure. Therefore the date of application for approval does not assume any significance as admittedly, the Assessee has obtained approval u/s. 35(2AB) of the Act and in any case for AY 2011-12, there was in fact an approval dated 19.1.2011. The Assessee is therefore entitled to deduction u/s.35(2AB) of the Act,” the ITAT said.
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