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TMI Blog2025 (5) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... certifying the said R& D expenditure was incurred and without appreciating that the quantum of deduction u/s 35(2AB) as per Form 3CL subsequently obtained shows the eligible amount on R&D expenditure to be of Rs. 14.46 crores and therefore the eligible deduction u/s 35(2AB) works out to only Rs 28.93 crores. 3. The Ld. CIT(A) erred in allowing the said deduction u/s 35(2AB) without giving an opportunity to the AO to verify as to whether the balance expenditure of Rs. 7.52 crores (R&D expenditure claimed by the assessee of Rs. 21.98 crores (-) R&D expenditure certified by DSIR of Rs.14.46 crores) has been incurred for eligible R&D only. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing officer be restored. 3. At the outset, it is noted that there is a delay of '22' days in filing of appeal and the Revenue has filed an application for condonation of delay. After going through the contents of the application, we find that there is a reasonable cause for condoning the delay and therefore, the same is condoned and we proceed to decide the appeal on merits. 4. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue & capital expenditure incurred for scientific research in terms of Section 35(1) of the Act. This action of the AO's predecessor inter alia allowing normal deduction for the capital expenditure of Rs.21.98 crores incurred for scientific research was subsequently disputed by the AO in the impugned reassessment, which was disallowed in the impugned reassessment order. We find that, before the Ld. CIT(A), the assessee pointed out that, it had later on received the Form 3CL and had accordingly filed rectification application u/s 154 of the Act for allowing the weighted 35(2AB) of the Act. Subsequent to the order passed by the Ld. CIT(A), the AO is also found to have acceded to the assessee's rectification application, and he is noted to have allowed the weighted deduction u/s 35(2AB) of the Act to the extent of the amount certified in Form 3CL i.e. Rs.424.26 crores (200% of Rs.212.13 crores). The details thereof are noted to be as follows: - (Amount Rs. in crores) Particulars Amount incurred towards scientific research at approved R&D Facility claimed as weighted deduction u/s 35(2AB) Amount certified by DSIR in Form 3CL Remaining amount not eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) of the Act. It is noted that, the lower authorities have denied this alternate claim on the ground that, no evidence was provided by the assessee in relation thereto. Before adverting to the facts of the present case, it is noted that Section 35(1)(iv) of the Act, provides that any expenditure of a capital nature on scientific research, related to the business of the assessee shall be admissible as deduction in terms of provision of Section 35(2) of the Act. It is further noted that sub-clause (ia) of Section 35(2) of the Act provides that, where the capital expenditure has been incurred after 31.03.1967, the entire value of capital expenditure is eligible for deduction from the profits of the business. Hence, in our considered view therefore, an assessee is entitled for normal deduction i.e. 100% of the capital expenditure incurred at its R&D facility in terms of Section 35(1)(iv) read with Section 35(2)(ia) of the Act, irrespective whether such capital expenditure is eligible for weighted deduction u/s 35(2AB) of the Act or not. 4.7 Our view finds support from the decision of the Hon'ble jurisdictional Madras High Court in the case of CIT vs Rajapalayam Mills Ltd. (265 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the rival submission carefully, we agree that Sec.35(1) as well as Sec.35(2AB) deal with the same expenditure i.e., scientific expenditure consisting of revenue and capital expenditure and only difference is that Sect.35(1) provides for allowance at normal rate i.e., actual expenditure whereas Sec.35(2AB) allows deduction to be claimed at weighted rate of 150% subject to fulfilment of certain conditions. Therefore, we find nothing wrong with the directions of the CIT(Appeals) to the Assessing Officer to allow normal deduction under Sec.35(1) particularly in view of the fact that the Assessing Officer himself has allowed deduction for the Asst. Year 2005-06." 5. Though there was no issue about the claim of weighted deduction, the Revenue has still preferred the present Appeal under Section 260A of the Act which was admitted by a coordinate Bench of this Court by order dated 9.1.2009, by framing the following substantial questions of law:-- "(i) Whether, on the facts and circumstances of the case, the Tribunal was right in law in entertaining a change of claim of deduction by the assessee from 35(2AB) to 35(1) of the Income Tax Act? (ii) Whether, on the facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes to audited financial statements along with a reconciliation statement between the amount certified in Form 3CLA and the figures reported in notes to audited financial statements. Having perused these details, we find that the details evidencing incurrence of capital expenditure at the approved inhouse R&D facility was duly disclosed in the notes to the audited financial statements and further the statutory auditor had verified and certified the same being relatable to scientific research in Form 3CLA. According to us therefore, these contemporaneous evidences sufficiently establish that the capital expenditure of Rs.100,21,22,016/- was incurred in relation to scientific research and was therefore eligible for deduction u/s 35(1)(iv) of the Act. Hence, the order of the lower authorities to that extent stands reversed. 4.9 In view of our above findings therefore, we direct the AO to further allow normal deduction for the capital R&D expenditure of Rs. 100,21,22,016/- u/s 35(1)(iv) of the Act, and resultantly delete disallowance to the extent of Rs.70,14,85,411/- (Rs.100,21,22,016/- minus Rs.30,06,36,605/-). This ground therefore stands partly allowed." 10. Following the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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