2000 (8) TMI 273 - AT - Income Tax

Summary

Issues:
1. Disallowance of Rs. 2,18,582 u/s 35 for expenditure on buildings for research and development.
2. Disallowance of Rs. 9,143 for amount spent at the time of Ganpati Festival.

Issue 1 - Disallowance of Rs. 2,18,582 u/s 35 for expenditure on buildings for research and development:
The assessee claimed 100% deduction u/s 35 for expenditure on buildings, plant & machinery, and tractor related to research and development. The Assessing Officer rejected the claim due to lack of documentary evidence establishing the assets' connection to research. However, CIT(A) found the assets were directly connected to scientific research, except for the building. The assessee argued that even indirectly connected expenditure qualifies for deduction u/s 35, citing relevant case law. The Tribunal agreed, interpreting "on scientific research" broadly to include immovable property expenses. Thus, the assessee was granted 100% deduction for building expenditure u/s 35, and depreciation was disallowed accordingly.

Issue 2 - Disallowance of Rs. 9,143 for amount spent at the time of Ganpati Festival:
The disallowance of Rs. 9,143 for expenses during Ganpati Festival was contested by the assessee, citing a Supreme Court decision allowing such expenses for labor welfare. The Tribunal agreed, considering the festival's significance in Maharashtra and its positive impact on employee morale. Therefore, the disallowance was overturned, and the expenses were deemed allowable for labor welfare. Consequently, the appeal was allowed in part.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, allowing the deduction for building expenditure u/s 35 and approving the expenses related to the Ganpati Festival as valid for labor welfare.