April 2008
Scientific Research and Development Expenditure : S. 35 : Whether machine being used for R&D purpose or for manufacturing, AO not authority to decide but prescribed authority u/s.35(3)
By K. B. Bhujle, Advocate
Reading Time 2 mins
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10 Scientific Research and Development Expenditure :
Deduction u/s.35 of Income-tax Act, 1961 : A.Y. 1999-00 : Axial machine and
computers : Whether machine being used for research and development purposes or
for manufacturing activity : Assessing Officer not an authority to decide :
Matter to be referred to prescribed authority u/s.35(3)
[CIT v. Deltron Ltd., 297 ITR 426 (Del.)]
The assessee incurred an expenditure of Rs.87,22,447 on
purchasing an axial machine along with machinery spares and computers. For the
A.Y. 1999-2000, it claimed the expenditure as a research and development
expenditure u/s.35(1) of the Income-tax Act, 1961. The Assessing Officer looked
at the brochure of the machine and came to the conclusion that the machine was
not used for research and development work and disallowed the claim. The
Commissioner (Appeals) held that the AO could not have disallowed the
expenditure without following the procedure prescribed u/s.35(3). Thereafter,
the Revenue could have made an attempt to find out the actual use of the
machine, but it did not do so. The Tribunal confirmed the view taken by the
Commissioner (Appeals).
The Delhi High Court dismissed the appeal filed by the
Revenue and held as under :
“(i) The prescribed authority in this case was not the
Assessing Officer and he could not determine whether the machinery was used by
the assessee for research and development purposes or not.
(ii) Even assuming that the Assessing Officer had the
authority, the least that would have been expected from him was to confirm
physically whether or not the machine was being used for research and
development purposes. No conclusion could be arrived at by the Assessing
Officer by merely looking at the brochure. Therefore, there was no error in
the order passed by the Tribunal.
(iii) Moreover, since there was a gap of so many years, it
would not be appropriate to remand the matter to the Assessing Officer to
refer the matter to the prescribed authority to decide the question whether
the machinery was used for research and development purposes or not.”
