Claim of R&D expenditure is allowed under Section 35(2AB) even though the same was claimed during the assessment proceedings and not in the original or revised return of income

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Recently, the Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of United Rubber Industries India Pvt. Ltd. allowed the claim of Research & Development expenditure under …

Recently, the Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of United Rubber Industries India Pvt. Ltd. allowed the claim of Research & Development expenditure under Section 35(2AB) of the Income-tax Act, 1961 even though the same was claimed through a letter during the assessment proceedings and not in the original or revised return of income.

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  • 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA Background Recently, the Mumbai Bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of United Rubber Industries India Pvt. Ltd.1 (the taxpayer) allowed the claim of Research & Development (R&D) expenditure under Section 35(2AB) of the Income-tax Act, 1961 (the Act) even though the same was claimed through a letter during the assessment proceedings and not in the original or revised return of income. Facts of the case The taxpayer, an Indian company did not claim deduction under Section 35(2AB) of the Act either in the original return of income or the revised return of income. During the course of the scrutiny assessment proceedings, the taxpayer made an additional claim, by way of a letter to the Assessing Officer (AO), for allowing the deduction under Section 35(2AB) of the Act. ______________ 1 DCIT v. United Rubber Industries India Pvt. Ltd. (I.T.A. No.6198/Mum/2012) – Taxsutra.com Relying upon the decision of the Supreme Court in the case of Goetze (India) Ltd 2 , the AO rejected the claim of the taxpayer. The Commissioner of Income-tax (Appeals) [CIT(A)] held that the ratio laid down by the Bombay High Court in the case of Pruthvi Brokers & Shares Pvt. Ltd 3 applies on the present case and directed the AO to examine the claim and allow the deduction. Tribunal’s ruling The decision of the Supreme Court in the case of Goetz India held that the AO is not allowed to entertain any claim otherwise than by a return of income. ______________ 2 Goetze (India) Ltd v. CIT [2006] 284 ITR 323 (SC) 3 CIT v. Pruthvi Brokers & Shares Pvt. Ltd [2012] 349 ITR 336 (Bom) Claim of R&D expenditure is allowed under Section 35(2AB) even though the same was claimed during the assessment proceedings and not in the original or revised return of income 12 March 2014
  • 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The Bombay High Court in the case of Pruthvi Brokers & Shares Pvt. Ltd. held that the jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in the case of Goetz India. Further, the Supreme Court held that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under Section 254 of the Act. The decision of the jurisdictional High Court in the case of Pruthvi Brokers & Shares Pvt. Ltd. indicates that the taxpayer can make an additional claim with the appellate authority and the appellate authority is within his power to admit the additional claim. The tax department had relied on the decision of the Orissa High Court in case of Orissa Rural Housing Development Corpn. Ltd. 4 but the same has not been applied in the present case since the decision of the jurisdictional High Court in case of Pruthvi Brokers & Shares Pvt. Ltd. has been followed. In the present case, the Tribunal upheld CIT(A)’s order since it has correctly followed the decision of the jurisdictional High Court. Accordingly, the Tribunal directed the AO to do necessary verification, to examine the claim and allow the deduction. Our comments Allowability of a fresh claim made by the taxpayer before during the assessment proceedings, which are not claimed in the original/revised return of income, has been a matter of dispute before the Courts. The Supreme Court in the case of Goetz India held that the AO is not allowed to entertain any claim otherwise than by a return of income. The tax authorities relying on the same have been disallowing the claim made during the assessment proceedings. This is a welcome decision wherein the Tribunal followed the jurisdictional High Court decision in the case of Pruthvi Brokers & Shares Pvt. Ltd. and upheld the claim made by the taxpayer during the assessment proceedings though such claim was not made in the return of income. ____________ 4 Orissa Rural Housing Development Corpn. Ltd. v. ACIT [2012] 343 ITR 316 (Orissa)
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