AI Structured Summary
Not yet generated for this judgment
Judgment
Per Renu Jauhri, Accountant Member:
The above captioned appeal is preferred by the assessees against the order dated 20.08.2025, passed by CIT(A)/Addl./JCIT(A)-12, Mumbai u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for A.Y. 2017-18.
The assessees has raised following grounds of appeal:
"1 On the facts and circumstances of the case, the order passed by the Commissioner of Income Tax. Appeal ADDL/JCIT (A)-12 Mumbai [CIT(A)] is bad both in the eye of law and on facts.
2 On the facts and circumstances of the case, the CIT(A) has erred both on facts and m law m confirming the addition made by the Ld. AO of the income at Rs 3 34.59,200/- as against the returned income of Rs. 2,98,29,990/-.
3 On the facts and circumstances of the case, the CIT(A) has erred both on facts and m law in confirming the disallowance of an amount of Rs. 15,07,468/- on account of late deposit of employees' contribution to EPF and ESI.
4 (i) On the facts and circumstances of the case, the CIT(A) has erred both on facts and in law in confirming the disallowance of Rs. 21,21,744/- on account of deduction claimed u/s 35(2AB) of the Act.
(ii)That the disallowance has been made without allowing the deduction of Rs. 10,60,872/- in accordance with the provisions of section 37(1) of the Act."
Brief facts are that the assessee filed its return for AY 2017-18 on 31.10.2017 declaring total income of Rs.2,98,29,990/-. The case was selected for scrutiny and assessment completed u/s 143(3) vide order dated 27.11.2019 at assessee income of Rs.3,34,59,202/- after making the following additions:
Disallowance u/s 36(1)(va) for late deposit of EPF/ESI Contribution of employees - Rs.15,07,468/-
Disallowance of claim u/s 35(2AB) - Rs.21,06,000/-
Aggrieved, the assessee preferred an appeal before Ld. CIT(A), who dismissed the same vide order dated 20.08.2025. Further aggrieved, the assessee has filed an appeal before the Tribunal.
Ground Nos. 1, 2 & 5 are general and hence need no separate adjudication. Ground No.3, regarding disallowance of employee's contribution to EPF/ESI on account of late deposit (Rs.15,07,468/-) has not been pressed by the assessee in view of the settled legal position. Thus, the sole substantive issue required to be adjudicated relates to disallowance of claim of deduction u/s 37(1) in respect of expenditure claimed and disallowed u/s 35(2AB) of the Act.
Ground No.4: disallowance of deduction u/s 35(2AB) (Rs.21,21,744/-).
Relevant facts are that the assessee had claimed an amount of Rs.63,33,744/- towards R & D expenditure u/s 35(2AB) of the Act. However, as per Form 3CL issued by the prescribed Authority under the Ministry of Science and Technology, a sum of Rs.21,06,000/- only was certified and approved for weighted deduction u/s 35(2AB) of the Act. In response to Id. AO’s query, the assessee explained that it had incurred Rs.31,66,872/- towards R & D Expenses during the year on which deduction at the rate of 200% was claimed at Rs.63,33,744/-. However, considering that only Rs.21,06,000/- was approved on R & D Expenditure vide the certificate in Form 3CL issued by the prescribed Authority, the AO restricted the claim to Rs.42,12,000/- (at the rate of 200% of Rs.21,06,000/) and disallowed the balance claim of Rs.21,21,744/- even though assessee had submitted that the same was allowable as business expenditure u/s 37(1) of the Act.
Before the Ld. CIT(A), the assessee argued that balance of Rs.10,60,872/- even if not allowed u/s 35(2AB), ought to be considered and allowed u/s 37(1) of the Act. However, Id. CIT(A) rejected the assessee’s claim by holding as under:
“From the above submission of appellant it is evident that the appellant itself has accepted that the expenditure of Rs.31,66,872/- has been incurred for the R&D purposes. It means that the said expenditure is capital in nature as the R&D activity will have enduring benefits to the appellant. Out of Rs.31,66,872/- the DSIR considered only Rs.21,06,000/- eligible for deduction u/s 35(2AB) of the Act i.e. the balance R&D expenses of Rs.10,60,872/- is not allowable u/s 35 (2AB) of the Act. The non-eligibility of R&D expenses of Rs.10,60,872/- u/s 35 (2AB) does not convert the same into revenue expenditure. Therefore, even though said expenditure are incurred by the appellant they are capital in nature and appellant has also accepted the same. Therefore, expenditure of Rs.10,60,872/- are not allowable as expenditure u/s 37(1) of the Act. Hence, Ground No.4(ii) is dismissed.”
Before us, Ld. AR has submitted that, there is no dispute regarding the fact that the expenditure had been incurred by the assessee during the year. Hence even if weighted deduction is not allowed u/s 35(2AB) in respect of part expenditure, the same is eligible for normal deduction u/s 37(1) of the Act.
Ld. DR has relied on the orders of the Lower Authorities.
We have heard the rival submissions and perused the material on record. We note that the break-up of the expenditure claimed u/s 35(2AB) is as under:
| Sr. No. | Nature of Expenditure | Amount |
|---|---|---|
| 1 | Salary | Rs.26,85,101/- |
| 2 | Material Consumption | Rs.4,57,841/- |
| 3 | Other Expenses | Rs.23,930/- |
| Total | Rs.31,66,872/- |
Out of the above, expenditure to the extent of Rs.20,06,000/- only was considered to be eligible for weighted deduction at the rate of 200% u/s 35(2AB) by the Prescribed Authority as certified in Form 3CL. Balance of Rs.10,60,872/- has to be considered as business expenditure as the genuineness of these expenses on account of salary, material consumption etc., has not been doubted by the Ld. AO. Under these facts and circumstances, we hold that the part disallowance of weighted deduction was justified in view of the certificate in Form 3CL issued by the Prescribed Authority. However, the balance amount of Rs.10,60,872/- has to be allowed as normal business expenditure u/s 37(1) of the Act. Accordingly, Ld. AO is directed to allow the claim of Rs.10,60,872/- u/s 37(1) of the Act. Assessee's appeal on this ground is therefore, allowed.
In the result, the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 22/04/2026.