This article provides an in-depth analysis of the Income Tax Appellate Tribunal’s decision in ITA No. 1231/DEL/2019 dated February 2, 2021, involving Bharat Rasayan Limited and the Assistant Commissioner of Income Tax, Circle-4(2), New Delhi. The case addresses significant issues pertaining to deductions under section 35(2AB) of the Income Tax Act, the admissibility of education cess as a deductible expense, and the classification of incentives received under the Foreign Trade Policy.
The primary issues in dispute were:
The appellant, Bharat Rasayan Limited, challenged the order of the CIT(A)-2, which had confirmed the assessing officer’s disallowance of weighted average deductions claimed under section 35(2AB). The appellant argued that their R&D center was duly recognized and compliant with the necessary statutory requirements, providing all relevant documentation to the Department of Scientific and Industrial Research (DSIR).
Deduction under Section 35(2AB): The tribunal noted that the appellant had submitted sufficient documentation to substantiate its claims. The absence of Form 3CL was discussed extensively, with the tribunal emphasizing that the responsibility to obtain this form rested with the assessing officer, not the taxpayer. Previous judgments supporting this view were cited, indicating a precedent for allowing such deductions even in the absence of Form 3CL.
Education Cess: The tribunal considered various judicial precedents and the Income Tax Act’s provisions, concluding that education cess qualifies as a deductible expense. This was supported by the interpretation of related CBDT circulars and the distinction between cess and taxes as clarified in multiple high court rulings.
Incentives under Foreign Trade Policy: The tribunal agreed with the appellant that the incentives received should be treated as capital receipts. It was determined that these incentives were intended to promote exports by exploring new markets, thereby not constituting income but a capital receipt aimed at business expansion.
The tribunal allowed the appeal in favor of Bharat Rasayan Limited, setting a significant precedent on several fronts, particularly in how R&D deductions and educational cesses are treated for tax purposes. This case highlights the importance of clear documentation and the need for tax authorities to adhere to procedural requirements.
Judgment Analysis of ITA No. 1231/DEL/2019: Bharat Rasayan Limited vs ACIT Circle-4(2), New Delhi
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