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2018 (11) TMI 1413 - AT - Income TaxAllowability of Deduction u/s 35(2 AB) - weighted deduction claimed u/s 35(2AB) in respect of R&D expenditure - assessee was not approved by the prescribed authority u/s 35(2AB) - Held that:- Unless the R&D facility is approved by the competent authority, the assessee shall not be eligible for weighted direction u/s 35(2AB). In this case, on perusal of facts available on record, it is abundantly clear that the competent authority has categorically stated that the assessee’s R&D facility had not been approved for the impugned assessment year, in a reply filed to the AO, in response to notice issued u/s 133(6). Therefore, we are of the considered view that the assessee is not eligible for weighted deduction u/s 35(2AB) in respect of R&D expenditure. Alternative submission of assessee if it is held that the assessee is not eligible for weighted deduction u/s 35(2AB), at least the deduction should be allowed u/s 37(1) in respect of expenditure incurred towards R&D facility - Held that:- We find merit in the argument of the assessee for the reason that if the assessee is not eligible for weighted deduction u/s 35(2AB), the expenditure towards such R&D facility cannot be disallowed when the assessee has filed necessary details to prove genuineness of such expenditure. In this case, on perusal of details, we find that the AO has never doubted the expenditure incurred by the assessee towards its R&D activities. The AO also not doubted the genuineness of such expenditure. Therefore, we are of the considered view that once the assessee has proved expenses with a necessary evidence, there is no reason for the AO to disallow such expenditure u/s 37(1) of the Act. Hence, we direct the AO to allow revenue expenditure incurred by the assessee to the extent u/s 37(1) Disallowance u/s 14A r.w. Rule 8D - suo moto disallowance by assessee - Held that:- The assessee has made suo moto disallowance of ₹ 10,000 considering the nature and amount of dividend income earned for the year. Admittedly, the assessee has earned dividend income of ₹ 3,945 as against which it has made disallowance of ₹ 10,000 towards expenditure incurred in relation to exempt income. As in the case of CIT vs Cheminvest Ltd vs CIT [2015 (9) TMI 238 - DELHI HIGH COURT]) held that disallowance contemplated u/s 14A shall not exceed exempt income. Thus disallowance worked out by the AO by invoking Rule 8D(2)(ii) & 8D(2)(iii) is in excess of exempt income earned for the year - we direct the AO to restrict disallowance to the extent of suo moto disallowance of ₹ 10,000 made by the assessee.
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