DCIT Vs Rane Brake Lining Ltd. (ITAT Chennai)
ITAT Allows Full Section 35(2AB) Deduction Because DSIR Approval Applies to Facility, Not Expense Quantification; ITAT Rejects Revenue Challenge to Weighted R&D Deduction Due to Approved In-House Facility; MTM Forex Loss Held Allowable as Business Expenditure: ITAT Dismisses Revenue Appeal; Foreign Exchange Fluctuation Losses Not Contingent in Nature.
The Income Tax Appellate Tribunal (ITAT), Chennai Bench, dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) for Assessment Year 2011-12 concerning weighted deduction under Section 35(2AB) and allowability of mark-to-market (MTM) losses.
The first issue related to weighted deduction claimed on expenditure incurred for an in-house Research and Development (R&D) facility approved by the Department of Scientific and Industrial Research (DSIR). The assessee had claimed 200% weighted deduction on capital expenditure of Rs.31.18 lakh and revenue expenditure of Rs.5.52 crore. The Assessing Officer initially disallowed the deduction due to non-submission of Form 3CL. Subsequently, after the assessee obtained Form 3CL, the Assessing Officer allowed deduction for the entire capital expenditure but restricted the revenue expenditure to Rs.2.40 crore based on DSIR approval.
The CIT(A) held that under Section 35(2AB), approval was required for the R&D facility and not for quantification of expenditure. It was observed that prior to the amendment to Rule 6(7A) effective from 01.07.2016, there was no prescribed mechanism requiring DSIR to certify yearly expenditure amounts. Relying on decisions including Cummins India Ltd., Reliance Industries Ltd., and Ashok Leyland Ltd., the CIT(A) directed allowance of the entire revenue expenditure claimed by the assessee.
