Matrix Clothing Pvt. Ltd. Vs ACIT (ITAT Delhi)
In a batch of cross appeals involving assessment years 2016-17, 2018-19 and 2019-20, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) adjudicated disputes concerning reopening of assessment, disallowance of manufacturing expenses, Research and Development (R&D) expenditure, and deduction claimed under Section 35(2AB) of the Income Tax Act.
For AY 2016-17, the assessee challenged the reopening of assessment and the disallowance of deduction under Section 35(2AB), while the Revenue challenged the deletion of additions relating to alleged excessive manufacturing expenses and R&D expenditure. The assessee had originally filed its return declaring income of Rs.11.74 crore, later revised to Rs.9.90 crore. An assessment under Section 143(3) was completed on 30.12.2018. Subsequently, a survey under Section 133A was conducted on 27.03.2019, following which reassessment proceedings under Section 148 were initiated on the grounds of alleged excessive manufacturing expenses and R&D expenditure.
The Tribunal first considered the issue relating to deduction under Section 35(2AB). It noted that the CIT(A) had upheld the disallowance by relying upon directions of the Dispute Resolution Panel for AY 2017-18 instead of independently examining the issue. The Tribunal observed that in the assessee’s own case for AY 2017-18, a coordinate bench had already allowed the deduction after considering the approval and certification issued by the Department of Scientific and Industrial Research (DSIR). The earlier order held that once DSIR had certified the expenditure eligible for deduction under Section 35(2AB), the Assessing Officer could not disregard the certificate without following the procedure prescribed under Section 35(3). Since no such procedure had been followed, the Tribunal deleted the disallowance and allowed the deduction claimed by the assessee.
