TMI Blog2014 (6) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch facility and therefore, not only the weighted deduction but also the basic deduction was disallowed. The Ld. CIT(A) after considering the assessment order and orders of his predecessor on record confirmed the disallowance. Therefore, assessee is in appeal before us. 5. Ld. Counsel submitted that assessee has obtained approval from DSIR for renewal of recognition of in-house R D unit beyond 31.03.2004 and this certificate was placed in paper book No.1 approving the R D unit up to 31.03.2007. Therefore, the first objection of the Revenue cannot be accepted as the assessee has obtained the recognition for all the impugned assessment years. 6. With reference to weighted deduction, it was submitted that assessee having applied to the concerned authority for issuance of certificates, so far they have not been issued with necessary approvals. It was the submission of the Ld. Counsel that for the time being assessee is restricting the claim to 100% of the actual expenditure spent on the scientific research and those amounts at 100% should be allowed. As and when necessary 3CM/3CL certificates are received, assessee would make further claim of weighted deduction as applicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut examining the allowability in the absence of certificates. Consequently there is justification for reopening of assessment. In these circumstances, we set aside the order of the CIT(A) and restore the issue to the file of the AO with a direction to allow weighted deduction u/s 35(2AB) as and when the assessee receives the approval under Form No. 3CM from the prescribed authority. Ground No. 4 is allowed for statistical purposes. 10. In this order, obviously the relevant Form 3CK and 3CL are even though submitted, the approval in Form 3CM has not yet been received by the assessee. In the case of ECIL vs. ACIT ITA.No.1106/Hyd/2011 dated 25.09.2012 similar issue was considered by the Coordinate Bench as under : 17. As per the provisions of sec 35(2AB) of Act as applicable to the relevant Assessment year , the expenditure incurred by the assessee in any approved in-house research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150% of such approved expenditure. Therefore, the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 2 of section 35(2AB) can only be invoked when the amount is allowed under section 35(2AB). In case the amount is not allowed under section 35(2AB), then, the allowance under section 37(1) can be examined as there is no such prohibition under that provision. 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 under section 35 or under section 37 so long as the amount spent is for the purpose of business. In view of this, we do not see any merit in the Assessing Officer s contention that the amount once considered under section 35 cannot be considered under section 37. Be that as it may, this issue is academic now as assessee research facility was approved and assessee is entitled for deduction under section 35(2AB) at 100% for the time being and weighted deduction as and when Form 3CM was received from the concerned authority. AO is directed to allow accordingly. Grounds in all the assessment years on this issue are considered allowed for statistical purposes. 13. DEDUCTION U/Sec. 35(1)(ii) : Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the institutions/universities. In our considered opinion, the amount in question was incurred towards scientific research only. In any event, it is not the case of the Revenue that the amount in question was not expended on scientific research. We have perused the provisions of S.35(1) and the relevant portion thereof is extracted below - Expenditure on scientific research. 35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed (i)) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. Explanation ...... As argued by the learned counsel for the assessee, we find that there is no violation of any provision of the Act by the assessee and the arguments of the learned counsel have to be accepted. Further, we have also perused para 3.7 and 3.8 of the order of the CIT(A), and find the same to be reasonable. Nothing has been brought out by the Learned Departmental Representative before us to show that the findings given by the CIT(A) are no correct. The said paras 3.7 and 3.8 of the order of the CIT(A) read as under - 3.7. Now, looking at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of testing and at page 36 of the paper book, sample note for approval from Central Rice Research Institute, Cuttack has been produced. However, the learned D.R. submitted that directions should be given to verify whether approval has been in accordance with the guidelines prescribed in Rules 5C and 5D or notified by the Central Government on proviso to Clause (2). In these circumstances, we are inclined to set aside the issue to the file of the A.O. to grant weighted deduction after verifying whether the approval has been obtained by the Universities/Institutions to whom payments have been made. 15.1 Therefore, respectfully following the Coordinate Bench decision on the issue and also perusing the evidence placed on record, we are of the opinion that assessee is entitled for necessary deduction under section 35(1)(ii). AO can also consider allowing the claim u/s 37(1) as well in case the expenditure is not allowed under Sec.35(1), subject to fulfilling the conditions of that provision. Assessing Officer 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. With this observati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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