BANCO PRODUCTS (INDIA) LTD. vs. DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1)

TAXAP/1057/2017HC GujaratGJHC24057265201726 March 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA10 pages
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What did the High Court hold?

The High Court allowed the assessee's appeal, holding that the Assessing Officer's decision to restrict the deduction for expenditure incurred prior to April 1, 2008, was set aside. The Court reasoned that the purpose of Section 35(2AB) is to promote research and development, and once a facility is approved, the entire expenditure incurred in developing it should be allowed as a deduction. The Court relied on its own decision in Commissioner of Income-tax v. Claris Lifesciences Ltd. and the Delhi High Court's decision in Maruti Suzuki India Ltd. v. Commissioner of Income-tax. These judgments established that the period during which approval is granted is not relevant, as long as approval has been granted and the expenditure was incurred for the specified purpose. The Court noted that the assessee had applied for approval on December 22, 2006, and approval was granted on October 22, 2008. The Court directed the Assessing Officer to recompute the deduction and give effect to it for the relevant assessment year. The question of law was answered in favour of the assessee.

What were the facts?

The assessee, Banco Products (India) Ltd., is engaged in manufacturing automotive parts. For Assessment Year 2008-2009, it claimed a deduction of Rs. 1.26 crores under Section 35(2AB) of the Income Tax Act, 1961, for expenditure incurred on its Research and Development (R&D) facility. The Assessing Officer disallowed the deduction for the period prior to April 1, 2008, citing that the approval for the R&D facility was granted from April 1, 2008, to March 31, 2010. The CIT(Appeals) upheld this decision. The assessee appealed to the Tribunal, which noted conflicting information regarding the date of application for approval and restored the issue to the Assessing Officer for fresh verification.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in restoring the matter back to the Assessing Officer for deciding the allowability of deduction under Section 35(2AB) of the Income Tax Act, 1961? Assessee's Contention: The assessee contended that expenditure incurred even before the grant of approval would be recognized for deduction under Section 35(2AB), relying on the Gujarat High Court's decision in Commissioner of Income-tax v. Claris Lifesciences Ltd. The assessee claimed to have applied for recognition of its R&D facility on December 22, 2006. Revenue's Contention: The revenue authorities, including the Assessing Officer and CIT(Appeals), contended that the approval for the R&D facility was specifically granted for the period from April 1, 2008, to March 31, 2010, and therefore, deduction under Section 35(2AB) was restricted to this period. The CIT(Appeals) distinguished the Claris Lifesciences Ltd. case by stating that in the assessee's case, approval was received after the financial year 2007-08 had ended, and the application for approval was also made in FY 2008-09.

Which sections of the Income-tax Act were involved?

Section 35(2AB),Section 143(3)

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C/TAXAP/1057/2017 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1057 of 2017

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE AKIL KURESHI

and HONOURABLE MR.JUSTICE B.N. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== BANCO PRODUCTS (INDIA) LTD. Versus DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1) ========================================================== Appearance: MR B S SOPARKAR(6851) for the PETITIONER(s) No. 1 MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 26/03/2018

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