Rane Brake Lining DSIR Curtailment Rejected

The assessee-company, engaged in manufacturing activities and operating an in-house Research & Development facility approved by the DSIR, claimed weighted deduction under Section 35(2AB) in respect of capital and revenue expenditure incurred on the approved R&D facility for AY 2011-12. 

Though the R&D facility itself stood duly recognized and approved in Form 3CM, the Assessing Officer restricted the weighted deduction to the amount quantified by DSIR in Form 3CL and disallowed the balance revenue expenditure.

The Commissioner (Appeals) deleted the disallowance after holding that under the statutory framework prevailing prior to the 2016 amendment to Rule 6(7A), DSIR approval pertained only to recognition of the R&D facility and not to year-wise quantification of eligible expenditure. 

The CIT(A) relied upon multiple Tribunal rulings, including Cummins India Ltd. and Reliance Industries Ltd., which held that prior to AY 2017-18, DSIR had no statutory authority to curtail deduction by approving only part of the expenditure.

The Tribunal affirmed the CIT(A)’s reasoning and held that once the in-house R&D facility was duly approved by DSIR, the entire eligible expenditure incurred thereon qualified for weighted deduction under Section 35(2AB), irrespective of DSIR’s restricted certification in Form 3CL. 

The Tribunal additionally upheld deletion of disallowance relating to Mark-to-Market foreign exchange losses by following the Supreme Court ruling in Woodward Governor India Pvt. Ltd. and earlier orders in the assessee’s own case.