Quantum of R&D expenditure entitled to weighted deduction under Section 35(2AB) of the Act by DSIR
A plain reading of Section 35(2AB) of the Act may suggest that the weighted deduction is not with respect to ‘expenditure’ on scientific research on in house R&D facility as approved by the prescribed authority.
Earlier, Rule 6 and Forms 3CK, 3CL and 3CM do not anywhere state that the approval granted by DSIR is with respect to the expenditure. Recently, Rule 6 has been amended vide Notification dated 28 April 2016, where it has been stated that DSIR shall furnish electronically its report quantifying the expenditure incurred on in house R&D facility by the company during the previous year and eligible for weighted deduction under Section 35(2AB) in Part B of Form No. 3CL.
Further DSIR has issued its own set of guidelines which specifically states that certain expenditure are not permissible for claiming weighted deduction under Section 35(2AB) of the Act viz. clinical trials conducted outside the approved facilities, lease rent, building maintenance and municipal taxes of the R&D facility, foreign patent filing expenditure and consultancy expenditure, interest on loan for R&D facility, etc
It is suggested that DSIR guidelines should not deal with the allowability or disallowability of any expenditure incurred on in-house R&D facility. There are sufficient provisions within the Act which provides powers to the Assessing Officer (AO) to examine the same. Further in case of doubt about the usage of asset or activity constituting scientific research, the AO can always refer the question to the Central Board of Direct Taxes (CBDT) under Section 35(3) of the Act, which in turn will refer the question to DSIR. Based on these feedback the AO may decide the quantum of R&D expenditure entitled to weighted deduction under Section 35(2AB) of the Act.