Madras H.C : Restrict the allowance of weighted deduction under section 35(2AB)

High Court Of Madras

CIT vs. Wheels India Ltd.

Assessment Year : 2004-05

Section : 35

F.M. Ibrahim Kalifulla And N. Kirubakaran, JJ.

Tax Case (Appeal) No. 978 Of 2010

November  23, 2010

JUDGMENT
 
F.M. Ibrahim Kalifulla, J. – The Revenue has come forward with this appeal. The appellant seeks to raise as many as three substantial questions of law, which are as under :

“(i) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in quashing the order of the Commissioner of Income-tax under section 263 of the Income-tax Act as per which he directed the Assessing Officer to restrict the allowance of weighted deduction under section 35(2AB) of the Income-tax Act with reference to the expenditure incurred from the date of notification of the Board, viz., from September 21, 2004 and to reconcile the difference between the amount added back by the assessee in the computation of total income and the amount of expenditure taken for the purposes of deduction under section 35(2AB) of the Act ?

(ii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in ignoring the letter of the Department of Scientific and Industrial Research dated August 11, 2005, addressed to the assessee wherein it has been clearly mentioned that for the year 2004-05 the research and development expenditure incurred after September 21, 2004, to March 31, 2005 would be eligible for weighted deduction and the assessee was to segregate the accounts accordingly ?

(iii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the failure of the Assessing Officer to consider the discrepancy between the amount of Rs. 2,56,05,533 added back by the assessee in the computation income and the amount of Rs. 3,28,55,061 being the amount taken for expenditure for the purposes of deduction under section 35(2AB) was not erroneous and prejudicial to the interests of the Revenue ?”

2. As far as the questions Nos. 1 and 2 are concerned, we do not find any scope to entertain this appeal, inasmuch as we find that the order of the Tribunal in holding that once the Central Board of Direct Taxes issued a notification dated September 21, 2004, notifying automobiles including automobile components, as article or thing for the purpose of clause (1) of sub-clause (2AB) of section 35 of the Income-tax Act, 1961, such benefit provided under the said section should enure to assessee for the whole of the assessment year and cannot be restricted from the date of the notification, is sustainable.

3. When the Commissioner of Income-tax in exercise of powers under section 263 of the Act sought to revise the order of the assessing authority relied upon the certificate issued by the prescribed authority, namely DSIR, wherein it was mentioned that for the year 2004-05, the research and development expenditure incurred after September 21, 2004 to March 31, 2005 would be eligible for weighted deduction, the Tribunal while setting aside the order of the Commissioner of Income-tax relied upon the decision of the Gujarat High Court reported in CIT v. Claris Lifesciences Ltd.[2010] 326 ITR 251.

4. In the said decision, the Division Bench of the Gujarat High Court noted the facts which are almost identical to the facts involved in the case on hand. The Division Bench of the Gujarat High Court has further noted that the DSIR in its approval letter dated February 27, 2001, by way of note mentioned that the facility approved for the purpose of section 35AB(2) was from February 27, 2001 till March 31, 2003. However, the assessee in the return claimed weighted deduction under the said provision at one and half times the expenses incurred on the entire expenditure on establishment of the facility. The claim was restricted by the assessing authority only with effect from February 27, 2001. On appeal, the Tribunal set aside the order of the assessing authority and allowed the claim for the whole of the year. Dealing with the said situation, the Division Bench of the Gujarat High Court made a specific observation, which reads as under (pages 254 and 255) :

“The Tribunal has also considered rule 6(5A) and Form 3CM and come to the conclusion that a plain and harmonious reading of the rule and Form clearly suggests that once the facility is approved, the entire expenditure so incurred on development of the research and development facility has to be allowed for weighted deduction as provided by section 35AB(2). The Tribunal has also considered the legislative intention behind the above enactment and observed that to boost the research and development facility in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, the intention of the Legislature by making the above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction.”

5. We are in full agreement with the reasoning which weighed with the Division Bench of the Gujarat High Court while holding that de hors any specific dates specified in the certificate of the prescribed authority, namely DSIR, once the prescribed authority approved the existence of research and development facility and the expenditure incurred on such scientific research, the assessee would be entitled for the expenditure incurred for the whole of the assessment year and cannot be granted in a truncated manner.

6. In the light of the above decision of the Division Bench of the Gujarat High Court, which we fully agree with, we do not find any scope to entertain the appeal on the first two grounds. Hence, the appeal is dismissed as far as the first and second questions of law raised by the appellant.

7. Notice of motion is ordered in this appeal as far as the third question of law, which reads as under :

“(ii) Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the failure of the Assessing Officer to consider the discrepancy between the amount of Rs. 2,56,05,533 added back by the assessee in the computation income and the amount of Rs. 3,28,55,061 being the amount taken for expenditure for the purposes of deduction under section 35(2AB) was not erroneous and prejudicial to the interests of the Revenue ?”

8. Mr. Subbaraya Aiyar, Padmanabhan, learned counsel takes notice for the respondent.

9. Call this matter on November 29, 2010.

[Citation : 336 ITR 513]

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