Bhansali Engineering Polymers Limited Vs Circle 1(2)(1) (ITAT Mumbai)
Summary: Bhansali Engineering Polymers Limited, a listed public limited company engaged in manufacturing Acrylonitrile Butadiene Styrene (ABS) and Styrene Acrylonitrile (SAN) resins, claimed deduction of Rs.1,12,08,649/- under Section 35(1)(iv) of the Income-tax Act, 1961 for capital expenditure incurred on construction of an R&D building. The Assessing Officer disallowed the claim because the DSIR approval was effective only from 20.05.2019 to 30.03.2022 and Form No.3CL certifying the eligible expenditure had not been issued. The assessment was completed under Section 143(3) read with Sections 143(3A) and 143(3B), determining total income at Rs.150,02,56,199/-.
The CIT(A) accepted the assessee’s contention that DSIR approval was not a prerequisite for deduction under Section 35(1)(iv) and that Form No.3CL pertained to claims under Section 35(2AB). However, the CIT(A) sustained the disallowance on a different ground, holding that Section 35(1)(iv) excluded expenditure on the cost of land or building. For this conclusion, reliance was placed on Hindustan Lever Ltd., 268 ITR 332.
ITAT Mumbai held that this interpretation was incorrect. A conjoint reading of Section 35(1)(iv) and Section 35(2)(ia) showed that the entire capital expenditure incurred on scientific research related to the assessee’s business was deductible in the year of incurrence, with the relevant statutory exclusion confined to expenditure attributable to acquisition of land. The words “not being expenditure in the nature of cost of any land or building” did not form part of Section 35(1)(iv); that restriction appeared in Section 35(2AB), which dealt with weighted deduction for expenditure on an approved in-house R&D facility. Restrictions governing Section 35(2AB) could not therefore be imported into a claim for actual capital expenditure under Section 35(1)(iv) read with Section 35(2).
