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2014 (12) TMI 298 - AT - Income TaxApplicability of section 35(3) - Expenses incurred on product development with reference to scientific research activity - Claim of product development expenditure being interest on loans and cost of consumables u/s 37(1) – Held that:- The Tribunal in its order dated 31st July, 2013 held that the assessee will not get benefit of deduction u /s. 35(1)(i) - the plea of the assessee was also that if the expenditure is not allowable u/s. 35(1)(i) then the expenditure is nothing but scientific R & D expenditure and, therefore, allowable u/s. 35(1)(iv) – u/s 35(1)(i) deduction is to be allowed in respect of any expenditure of capital nature of scientific nature relating to business carried on by the assessee – Following the decision in Enem Nostrum Remedies (P.) Limited. Versus Assistant Commissioner Of Income-tax, Circle 8 [2008 (8) TMI 384 - ITAT BOMBAY-E] - there is difference in the language of clause (iv) of section 35(1) and section 43(4)(iii)(a) because the reference in the former section is to 'scientific research related to the business carried on by the assessee' and in the definition clause of section 43, the language used is 'scientific research related to a business or class of business' to include 'any scientific research which may lead to or facilitate an extension of that business or as the case may be, all businesses of that class - the molecules when successfully developed will yield patent rights to the assessee - the assessee will be inventor of such product and, therefore, the expenditure is for scientific research and eligible for deduction u/s. 35 of the Act - the process of development of molecule to the stage of vaccine i.e., medicine is the process involved in scientific research - the proper course of action for the AO is to refer the matter as directed u/s. 35(3) - The Tribunal cannot decide the claim against the assessee or in its favour without following the procedure laid down in the Act –thus, the matter is remitted back to the AO with a direction to refer the claim of deduction u/s. 35 according to the procedure laid down u/s. 35(3) – Decided in favour of revenue.
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