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2012 (9) TMI 264 - HC - Income TaxDisallowance claim of expenditure on scientific research u/s 35(1) - no new product was developed as there was only modification in the existing product -ITAT allowed the claim - Held that - The Tribunal without discussing full materials on record, came to such conclusion that deduction u/s 35 need to be allowed as these are matters of extreme scientific complexities. What was the nature of the research undertaken, what was the improvement in the existing software aimed at or desired, whether ultimately the product which was launched by the assessee after undertaking such so called scientific research, was a new product substantially different from the existing one or not were some of the issues on which the Tribunal, without bestowing sufficient attention ruled in favour of the assessee. AO could not have rejected such a claim without making a reference to the Board - Held that:- Section 35(3) requires a reference to be made by the Board to the prescribed authority when a question arises as to whether and if so to what extent, any activity constitutes or constituted or any asset is or was being used for scientific research. The decision of the prescribed authority on such a question would be final, thus the AO not having obtained such a decision of the prescribed authority though a serious question in the present case had arisen, was not justified in rejecting the assessee's claim for deduction of expenditure incurred for scientific research. Thus rejection of reopening of the entire issue as the Commissioner held that a substantial portion of such expenditure was in any case of revenue nature and in respect of the provision of section 37(1) of the Act, the assessee was entitled to claim full deduction thereof - in favour of assessee.
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