ACIT CENTRAL CIRCLE-05, NEW DELHI vs. VE COMMERCIAL VEHICLES LIMITED, NEW DELHI

ITA 1411/DEL/2023Status: DisposedITAT Delhi19 August 2025AY 2015-1613 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

On the issue of R&D expenditure (Grounds 1 to 1.2 for AY 2015-16 and Grounds 1 to 1.2 for AY 2016-17), the Tribunal allowed the assessee's claim. The Tribunal reasoned that Section 35(2AB) requires approval of the R&D facility by the prescribed authority, but it does not mandate that the prescribed authority must verify and certify the quantum of capital and revenue expenditure. The Tribunal also noted that the amended Rule 6(7A), relied upon by the AO, was effective from AY 2017-18 and thus wrongly applied to the assessment year under appeal. The Tribunal followed various precedents cited by the assessee. The ratio is that the approval of the R&D facility by DSIR is sufficient for claiming weighted deduction under Section 35(2AB), and the quantum of expenditure certified by DSIR is not a prerequisite for allowing the deduction, provided the expenditure is otherwise verifiable and incurred for the approved facility. The disallowance of INR 3,49,56,000 for AY 2015-16 and INR 6,23,00,000 for AY 2016-17 was deleted. On the issue of DDT (Grounds 2 to 2.1 for AY 2015-16 and Grounds 2 to 2.1 for AY 2016-17), the Tribunal dismissed the assessee's grounds, respectfully following the judgment of the Hon'ble Special Bench in DCIT vs Total Oil India Pvt. Ltd. The AO's action in charging DDT at 19.994% was upheld. On the issue of interest under Section 234C (Ground 3 for AY 2015-16), the Tribunal allowed the ground for statistical purposes, directing the AO to re-work the interest on the income declared by the assessee in the return of income filed. The ratio is that interest under Section 234C should be computed on the income declared in the return. On the issue of training expenses (Ground raised by Revenue for AY 2015-16), the Tribunal dismissed the Revenue's appeal. The Tribunal followed the order of a Co-ordinate Bench in ITA No.5734/Del/2016, which held that training expenses are business expediency and revenue expenditure allowable under Section 37(1), and cannot be treated as deferred revenue or capital expenditure. The jurisdictional High Court had also upheld the Tribunal's order. The ratio is that training expenses incurred for drivers and technicians are revenue expenditure and not deferred revenue expenditure. Operative directions: Deletion of disallowance for R&D expenses, interest under Section 234C re-worked, and dismissal of Revenue's appeal on training expenses.

What were the facts?

The assessee, VE Commercial Vehicle Ltd., is engaged in manufacturing and sale of commercial vehicles. For Assessment Year (AY) 2015-16, the assessee claimed a deduction of INR 11,044.43 Lakhs under Section 35(2AB) for R&D expenses. The Assessing Officer (AO) disallowed a portion of this claim, amounting to INR 3,49,56,000, as the Department of Scientific and Industrial Research (DSIR) had not certified the gross expenditure. The assessee's appeal to the CIT(A) was partly allowed. The assessee also claimed a deduction for training expenses of INR 3,15,82,907 for AY 2015-16, which the AO disallowed as deferred revenue expenditure. The CIT(A) allowed this claim. For AY 2016-17, the assessee claimed a deduction of INR 6,23,00,000 under Section 35(2AB), which was disallowed by the AO. The CIT(A) partly allowed the assessee's appeal. The Revenue has also filed an appeal against the CIT(A)'s order for AY 2015-16 concerning the training expenses.

What were the issues?

1. Whether the CIT(A) erred in upholding the AO's disallowance of INR 3,49,56,000 in respect of research and development expenditure claimed under Section 35(2AB) of the Income Tax Act, 1961, by holding that the prescribed authority must certify the gross expenditure, and whether the amended Rule 6(7A) was wrongly applied for AY 2015-16? - Assessee's contention: The prescribed authority's role is to approve the R&D facility, not to verify and certify the quantum of expenditure. The amendment to Rule 6(7A) is not applicable to the assessment year under appeal. Reliance was placed on various High Court and ITAT judgments. - Revenue's contention: Weighted deduction under Section 35(2AB) should be restricted to the amount certified by the prescribed authority in Form 3CL. Reliance was placed on a Hyderabad ITAT judgment. 2. Whether the CIT(A) erred in not restricting the Dividend Distribution Tax (DDT) rate to 10% or 5% (considering the Most Favored Nation clause) on dividends paid to Swedish entities, as per Article 10 of the India-Sweden DTAA? - Assessee's contention: The DDT rate should be restricted to 10% or 5% based on the DTAA provisions and the MFN clause read with other DTAAs. - Revenue's contention: The AO's action in charging DDT at 19.994% was supported. 3. Whether the CIT(A) erred in confirming the excess charging of interest of INR 8,41,407 under Section 234C of the Income Tax Act? - Assessee's contention: Interest under Section 234C was wrongly charged. - Revenue's contention: Not recorded. 4. Whether the AO erred in disallowing training expenses of INR 3,15,82,907 by treating them as deferred revenue expenses for AY 2015-16? - Assessee's contention: The training expenses are revenue expenditure allowable under Section 37(1). - Revenue's contention: The expenses were deferred revenue expenses and should not be allowed in full.

Which sections of the Income-tax Act were involved?

Section 35(2AB),Section 35(1)(iv),Section 115,Section 10,Section 234C,Section 143(3),Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI “I” BENCH: NEW DELHI

Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL

For Appellant: Shri Ajay Vohra, Sr.Adv, Shri Neeraj Jain, Adv, Ms. Manisha Sharma, Adv. &, Shri Jatindra Bhati, AR
For Respondent: Shri Dharm Veer Singh, CIT DR
Hearing: 19.08.2025Pronounced: 19.08.2025

PER MANISH AGARWAL, AM :

The captioned appeals are filed by assessee against the orders, both dated 20.02.2023 passed by Ld. Commissioner of Income Tax (A)-24, New Delhi [“Ld.CIT(A)”] in Appeal No.CIT(A), Delhi-24/10419/2017-18 and CIT(A), Delhi-24/10727/2015-16

The order continues below.

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