Weighted Deduction allowable u/s 35(2AB) of Income Tax Act when DSIR has Passed an Order Granting Approval in Form 3CM: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the weighted deduction is allowable under Section 35(2AB) of the Income Tax Act, 1961 when the Department of Scientific and Industrial Research (DSIR) passed an order granting approval in form 3CM.

The assessee is a company and is engaged in the business of manufacturing and trading drugs and pharmaceutical formulations, chemicals, and solvents. The assessee filed its return of income declaring a total income of Rs. 13,49,81,938. The case was selected for scrutiny and statutory notices under Section 143(2) as well as Section 142(1) of the Income Tax Act were issued and served on the assessee.

The assessee claimed a weighted deduction under Section 35(2AB) of the Income Tax Act of Rs 40,27,49,180 being 200% of revenue expenditure incurred on scientific research amounting to Rs. 19,75,62,590 and 200% of capital expenditure incurred on scientific research amounting to Rs. 38,12,000.

The assessee furnished the copy of the order of approval in Form No. 3CM given by the Department of Scientific and Industrial Research and the certificate issued by the Chartered Accountant justifying the claim of deduction. However, during the assessment proceedings, the assessee could not furnish a copy of Form No. 3CL which is the report to be submitted by the prescribed authority to the Director-General of Income Tax (Exemptions) under Section 35(2AB) of the Income Tax Act.

The Assessing Officer held that the assessee has not furnished the copy of Form No. 3CL, the claim for weighted deduction Section 35(2AB) of the Income Tax Act in respect of expenditure incurred on in-house research facility is not allowable. The Commissioner of Income Tax (Appeal) [CIT(A)], dismissed the appeal filed by the assessee and upheld the disallowance of Rs. 212.85 lakh under Section 35(2AB) of the Income Tax Act.

The Two-member bench comprising of B.R. Baskaran (Accountant member) and Sandeep Singh Karhail (Judicial member) held that the assessee is entitled to claim weighted deduction on expenditure of Rs. 184.95 lakh under section 35(2AB) of the Act in respect of the clinical trial expenses incurred outside the approved in-house R&D facility.

As regards, the balance expenditure of Rs. 27.90 lakh, as per the assessee the same was in relation to electricity expenses, which are directly related to the R&D centre at the Goa unit. Thus, the bench was of the view that the said expenditure is also eligible for weighted deduction under Section 35(2AB) of the Income Tax Act.

Therefore, the impugned order passed by the CIT(A) was set aside and the Assessing Officer was directed to grant a weighted deduction on the revenue expenditure of Rs. 212.85 lakh under Section 35(2AB) of the Income Tax Act. Thus, the appeal by the assessee was allowed.

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