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2014 (6) TMI 396 - AT - Income TaxWeighted deduction u/s 35(2AB) of the Act – in-house R & D unit - reopening of assessment - disallowance of 5% of business development expenditure on adhoc basis. - Held that:- Following Nagarjuna Agrichem Ltd. Versus Dy. Commissioner of Income-tax [2014 (6) TMI 316 - ITAT HYDERABAD] - the statutory formalities for getting approval u/s 35(2AB) are that application in Form No. 3CK and 3CL are to be submitted and an order of approval has to be obtained in Form No. 3CM from the prescribed authority - the assessee has not furnished Form No. 3CM either before the revenue authorities or before us for claiming weighted deduction u/s 35(2AB) - there is justification for reopening of assessment - assessee is entitled for 100% of the allowance at present and as and when received Form 3CM, weighted deduction may be allowed. Restriction placed in Section 35(2AB) will apply, in our opinion, only in the case when amount was allowed under section 35 itself - These two provisions are mutually exclusive but an assessee can claim a particular deduction either u/s 35 or u/s 37 so long as the amount spent is for the purpose of business – there was no merit in the AO’s contention that the amount once considered u/s 35 cannot be considered u/s 37 – Decided in favour of assessee. Claim of expenses on research and development u/s 35(1)(ii) of the Act – Held that:- Following Nagarjuna Agrichem Ltd. Versus Dy. Commissioner of Income-tax [2014 (6) TMI 316 - ITAT HYDERABAD] - assessee is entitled for necessary deduction u/s 35(1)(ii) - AO can also consider allowing the claim u/s 37(1) as well in case the expenditure is not allowed u/s 35(1), subject to fulfilling the conditions of that provision – AO is directed to examine the evidence and allow as per the provisions of the Act, after satisfying himself that the assessee has fulfilled the conditions – Decided in favour of assessee. Adhoc disallowance – Held that:- Following Nagarjuna Agrichem Ltd. Versus Dy. Commissioner of Income-tax[2014 (6) TMI 316 - ITAT HYDERABAD] - expenditure under the head is not related exclusively for the business development - he has disallowed 10% of the total expenditure u/s 37(1) - CIT(A) was of the view that the gifts purchased were of complimentary in nature and necessary for the purpose of business - assessee relied on various case law to substantiate that expenditure is wholly and exclusively for the purpose of business and is allowable u/s 37(1) – thus, 5% adhoc disallowance of the amount is reasonable – Decided in favour of Revenue.
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