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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
Before: SHRI INTURI RAMA RAO & SHRI LALIET KUMAR
This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-3, Bengaluru, [CIT(A)] dated 31/05/2017 for the assessment year 2013-14.
The assessee-appellant raised the following grounds of appeal:
3. Briefly facts of the case as under: The assessee is a company duly incorporated under the provisions of the Companies Act 1956. It is engaged in the business of manufacture of printing of paper. Return of income for the assessment year 2013-14 was filed on 30/09/2013 declaring total income of Rs.3,49,71,770/-. Against said return of income, the assessment was completed by the Deputy Commissioner of Income-tax, Circle 3(1)(2), Bangalore, [hereinafter referred to as the AO] vide order dated 30/03/2016 passed u/s 143(3) of the Income Tax Act 1961 [‘ ‘the Act’ for short]. The AO, while completing the assessment denied the claim made u/s 35(1)(iv) of the Act. The assessee made a claim for deduction of Rs.3,54,00,000/- under the provisions of section 35(1)(iv) claiming to be capital expenditure incurred on R&D. During the course of assessment proceedings, the AO denied the claim holding that the assessee had failed to furnished details of research carried on.
The facts set out by the AO on this issue are as follows:
Being aggrieved by the above addition, an appeal was preferred before the CIT(A) who confirmed the addition holding that the assessee had failed to establish that the machinery was used to carry out any kind of scientific research. The relevant findings of the CIT(A) are as under:
Being aggrieved, the assessee is in appeal before us. The learned AR of the assessee submitted that the assessee has carried on R&D activity relevant to the business of printing of security paper which is the business of the assessee. He also submitted that the machinery which was claimed to be used in the research and development activity was exclusively used by Research and activity development activity. On the direction from the bench, the learned AR of the assessee also furnished details of the personnel employed in R&D activity and the nature of work carried out by them and also the details of amount spent on plant and machinery employed in R&D activity etc. He further submitted that by reason of this activity, appellant-company has developed processing of manufacturing paper and also in the process of developing special paper like wet strength abrasive paper (contact) wet strength abrasive paper (unquotal), lab. Grade Filter paper and Gemman Ashless paper.
On the other hand, the learned ld.CIT(DR) placed reliance on the orders of the lower authorities.
We heard rival submissions and perused material on record. In this case, the assessee made a claim for deduction of Rs.3,54,00,000/- under Page 6 of 7 the provisions of clause (iv) of sub-section (1) of section 35 of the Act. The relevant provisions read as under:
Expenditure on scientific research. 35. (1) In respect of expenditure on scientific research, the following deductions shall be allowed— (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2): Provided that the research association, university, college or other institution referred to in clause (ii) or clause (iii) shall make an application in the prescribed form and manner to the Central Government] for the purpose of grant of approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii) : Provided further that the Central Government] may, before granting approval under clause (ii) or clause (iii), call for such documents (including audited annual accounts) or information from the research association, university, college or other institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the research association], university, college or other institution and that Government may also make such inquiries as it may deem necessary in this behalf : Provided also that any notification issued, by the Central Government under clause (ii) or clause (iii), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President†, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years] (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification: Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President†, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received by the Central Government.
The requirement of clause (iv) is that assessee should carry on scientific research relating to business carried on by the assessee and any capital expenditure incurred in carrying out such research shall be allowed as deduction under provisions of sub-section (2) of section 35. In the present case, AO denied the claim on account of failure of the assessee to Page 7 of 7 produce details regarding nature of scientific research activity carried on by the assessee. Even in the proceedings before the CIT(A), assessee had failed to do so. But the AO had not brought any material on record rebutting the claim of the assessee. Further he had not even referred to any material to say that the assessee-company had not carried on any R&D activity which is relevant for the business carried on by the assessee-company. Therefore, in the interest of justice, we remand this issue back to the file of the AO to decide the issue in accordance with law after giving due opportunity of being heard to the appellant-company.
In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes.