Budget 2015- Prescribed conditions relating to maintenance of accounts, audit etc to be fulfilled by the approved in-house R&D facility

Under section 35(2AB) of the Act, weighted deduction of 200% is allowed to a company engaged in the business of bio­technology or manufacturing of goods (except items specified in Schedule-XI) for the expenditure (not being expenditure in the nature of cost of any land or building) incurred on scientific research carried out in an approved in-house research and development facility. For availing this weighted deduction, the company is required to enter into an agreement with the Secretary, Department of Scientific and Industrial Research (DSIR) and also required to obtain his approval. The Secretary, DSIR is required to send the report regarding approval to DGIT (Exemption) in prescribed Form who generally does not have jurisdiction over the assessee company. Further, the company is required to maintain separate books of account for approved R&D facility and is also required to get the account audited. However, the copy of audit report is required to be submitted to the DSIR only. The Comptroller and Auditor General of India in its report on performance audit of pharmaceuticals sector recommended for rationalisation of the provision relating to monitoring of this weighted deduction. In order to have a better and meaningful monitoring mechanism for weighted deduction allowed under section 35 (2AB) of the Act, it is proposed to amend the provisions of section 35(2AB) of the Act to provide that deduction under the said section shall be allowed if the company enters into an agreement with the prescribed authority for cooperation in such research and development facility and fulfills prescribed conditions with regard to maintenance and audit of accounts and also furnishes prescribed reports. It is also proposed to insert reference of the Principal Chief Commissioner or Chief Commissioner in section 35(2AA) and section 35(2AB) of the Act so that the report referred to therein may be sent to the Principal Chief Commissioner or Chief Commissioner having jurisdiction over the company claiming the weighted deduction under the said section.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

Note On Relevant Clauses of Finance Bill 2015

Clause 12 of the Bill seeks to amend section 35 of the Income-tax Act relating to expenditure on scientific research.

The existing proviso to sub-section (2AA) of the said section 35, inter alia, provides that the prescribed authority shall submit its report to Principal Director General or Director General. It is proposed to insert the reference of Principal Chief Commissioner or Chief Commissioner in the said proviso so as to enable the prescribed authority to submit its report to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General.

The existing provision contained in clause (3) of sub-section (2AB) of the said section provides that no company shall be entitled for deduction under clause (1) of the said sub-section (2AB) unless it enters into an agreement with the prescribed authority for cooperation in such research and development facility and for audit of the accounts maintained for that facility.

It is proposed to amend clause (3) of sub-section (2AB) of the said section to provide that no company shall be entitled for deduction under clause (1) of the said sub-section (2AB) unless it enters into an agreement with the prescribed authority for cooperation in such research and development facility and fulfils conditions with regard to maintenance and audit of accounts and furnishing of report, as may be prescribed.

The existing provisions contained in clause (4) of sub-section (2AB) of the said section 35 further provides that the prescribed authority shall submit its report in relation to the approval of the research and development facility to the Principal Director General or Director General. It is proposed to insert the reference of Principal Chief Commissioner or Chief Commissioner in the said clause so as to enable the prescribed authority to submit its report to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016- 17 and subsequent years.

Extract of Relevant Clauses from Finance Bill 2015 proposing amendment to Income tax Act, 1961
12.  Amendment of section 35.

In section 35 of the Income-tax Act, with effect from the 1st day of April, 2016,—

(i)       in sub-section (2AA), in the proviso, after the words “submit its report to the”, the words “Principal Chief Commissioner or Chief Commissioner or” shall be inserted;

(ii)      in sub-section (2AB),—

(a)      in clause (3), for the words “for audit of accounts maintained for that facility”, the words “fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed” shall be substituted;

(b)      in clause (4), after the words “approval of the said facility to the”, the words “Principal Chief Commissioner or Chief Commissioner or” shall be inserted.

( Compiled by CA Ankit Banka & Taxguru Team)

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Category : Income Tax (24907)
Type : Articles (13930)
Tags : Budget (1473) Budget 2015-16 (272)

0 responses to “Provisions related to maintenance of accounts, audit etc by approved in-house R&D facility”

  1. Sunil Bhageria says:

    Have they prescribed the new rules related to maintenance and audit of accounts and reporting mechanism or the same are yet to be prescribed. If already done than could you please provide the relevant amended rules/provision.

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