By K. B. BHUJLE
Advocate
The assessee claimed weighted
deduction u/s. 35(2AB) of the Act on the expenditure incurred for setting up
research and development facility. This was supported by the approval granted
by the concerned authority with respect to such facility. The Assessing Officer
was of the opinion that such deduction could not be granted for the period
prior to the effective date
of approval.
The Commissioner (Appeals) upheld
the decision of the Assessing Officer. The Tribunal took the view that the
facts were somewhat contradictory. It was not clear when the application for
approval was made and when actually approval was granted. The Tribunal
therefore, remanded the proceedings for fresh consideration by the Assessing
Officer.
On appeal by the assessee, the
Gujarat High Court held as under:
“i) Section 35(2AB) of the Act is
aimed at promoting development of in-house research and development facility
which necessarily would require substantial expenditure which immediately may
not yield desired results or be correlated to generation of additional revenue.
By very nature of things, research and development is a hit and miss exercise.
Much of the efforts, capital as well as human investment may go waste if the
research is not successful. The Legislature therefore, having granted special
deduction for such expenditure, it should be seen in the light of the purpose
for which it has been recognised. Research and development facility can be set
up only after incurring substantial expenditure. The application for approval
of such facility can be made only after setting up of such facility. Once an
application is filed by the assessee to the prescribed authority, the assessee
would have no control over when such application is processed and decided. Even
if therefore, the application is complete in all respects and the assessee is
otherwise eligible for grant of such approval, approval may take some time to
come by.
ii) The
claim for deduction cannot be defeated on the ground that such approval was
granted in the year subsequent to the financial year in which the expenditure
was incurred. In order to avail of the deduction u/s. 35(2AB) what is relevant
is not the date of recognition or the cut off date mentioned in the certificate
of the prescribed authority or even the date of approval, but the existence of
recognition.
iii) The Assessing Officer was not right in restricting the deduction
to expenditure incurred prior to April 1, 2008. He had to recomputed such
deduction and give its effect to the assessee for the relevant assessment year.
iv) In
the result, the appeal is allowed. The question is answered in favour of the
assessee. Decision of the Assessing Officer to restrict the assessee’s claim
for deduction on the expenditure which was incurred prior to April 1, 2008 is
set aside. The Assessing Officer shall recomputed such deduction and give its
effect to the assesee for the relevant assessment year.”
