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2018 (5) TMI 1683 - AT - Income TaxPurchase of Research & Development Assets - Claim of deduction u/s 35 - expenditure incurred on in-house R&D facility - Expenditure on improvement and upgrading of products - Capital or Revenue - Held that:- The expenditure that is sought to be excluded u/s.43(4)(ii) of the Act is an expenditure which the assessee incurs in acquiring rights in or arising out of scientific research already done by somebody. - The objective behind the exclusion clause in section 43(4)(ii) of the Act appears to be that expenditure on scientific research should be on the research actually carried out by the assessee in-house and it should not merely spend money in acquiring rights in OR arising out of scientific research carried out by some other person. In any event, there is no distinction as to whether the expenditure incurred is capital or revenue, because while the provisions of section 35(1) of the Act allows deduction of revenue expenditure, the provisions of section 35(1)(iv) of the Act allows deduction in respect of capital expenditure. - thus respectfully following the decision of the Hon'ble Karnataka High Court in the case of CIT Vs.Talisma Corpn (P) Ltd. [2013 (12) TMI 1419 - KARNATAKA HIGH COURT] AO is directed to allow the deduction claimed by the assessee under Section 35(1)(iv) - Decided in favor of assessee. Disallowance of interest expenditure u/s 14A incurred on earning exempt income - Held that:- Taking into consideration the fact that the assessee had earned exempt dividend income of ₹ 7,13,70,554, the disallowance as computed under Rule 8D(2)(ii) at ₹ 52,53,500; which works out to approx. 7.36% thereof is reasonable in the facts and circumstances of the case in the year under consideration and is therefore upheld - thus AO is directed to delete disallowance under Rule 8D(2)(ii) sustained by the learned CIT(A) and uphold the disallowance made by the authorities below under Rule 8D(2)(iii) - partly allowed in favor of assessee.
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