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Facts
The assessee claimed a deduction for scientific research expenses amounting to Rs. 5,66,34,913/-. The CPC, however, interpreted the tax auditor's report erroneously, considering the expenses as 'not allowable', and made an addition. The CIT(A) confirmed this addition, believing it to be a fresh claim at the appellate stage.
Held
The Tribunal observed that the tax auditor's report stated the expenses were admissible under Section 35(1)(i) of the Act and debited to the profit and loss account, not that they were disallowable. The CPC's disallowance and the CIT(A)'s confirmation were based on a misunderstanding.
Key Issues
Whether the addition made by the CPC and confirmed by the CIT(A) on account of scientific research expenses was erroneous, given the tax auditor's report and the nature of the expenses.
Sections Cited
35(1)(i)
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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: Shri B R Baskaran, Hon’ble & Shri Anikesh Banerjee, Hon’ble
O R D E R Per B R Baskaran, Accountant Member:
The assessee has filed this appeal challenging the order dated 30-03- 2024 passed by Ld Addl/JCIT(A), Panchkula and it relates to the assessment year 2021-22. The assessee is aggrieved by the decision of Ld Addl/JCIT(A) in confirming the adjustment of Rs.5.66 crores relating to the deduction claimed u/s 35(1)(i) of the Act made by the CPC while processing the return of income.
The Ld A.R submitted that the assessee had incurred revenue expenses on scientific research to the tune of Rs.5,66,34,913/- and debited the same in the profit and loss account. In the tax audit report, the Tax auditor has mentioned the above amounts specifically stating that the same is allowable u/s 35(1)(i) of the Act. However, the CPC has erroneously interpreted that the above said amount has been mentioned as “not allowable” by the tax
ITA 2950/Mum/2024 Colgate Palmolive (India) Limited auditor. Accordingly, while processing return of income of the assessee, above said amount was added by way of adjustment. The Ld CIT(A) also confirmed the addition by observing that the assessee has not claimed above said amount and hence new claim can’t be made at the appellate stage.
We heard the parties and perused the record. We notice that the tax auditor has observed as under in clause 19 of the Tax Audit Report:-
“Amounts admissible as per the provisions of the Income tax Act, 1961 and also fulfils the conditions, if any specified under the relevant provisions of the Income tax Act, 1961 or Income tax Rules, 1962 or any other guidelines, circular etc issued in this behalf.”
Further the Tax auditor has also stated that the above said amount has been debited to Profit and Loss account. Hence, it is not a case where the tax auditor has mentioned the same as “amount disallowable”, but the assessee has not disallowed the same, which may call for an addition. We observe that the CPC has erroneously disallowed the above said amount. We notice that the Ld CIT(A) has confirmed the said disallowance under the erroneous understanding that the assessee is making a fresh claim. Under these set of facts, we are of the view that no adjustment could have been made by CPC in respect of above said amount.
Accordingly, we set aside the order passed by Ld Addl/JCIT(A) and direct the AO/CPC to delete the disallowance of Rs.5,66,34,913/- relating to scientific research expenses made by way of adjustment.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 31st July, 2024.