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July 28, 2022

Capital expenses on R&D approved by DSIR is allowed weighted deduction

by CA Shivam Jaiswal in Income Tax

Capital expenses on R&D approved by DSIR is allowed weighted deduction

Facts and issues of the case

The company is engaged in developing suitable and contemporary technologies to meet the various emissions norms as per International Standards from its own R&D set-up. During the year under consideration in its computation of income, the assessee has added R&D expenses amounting to Rs. 3,85,19,630/- and deducted R&D allowable expenses amounting to Rs. 13,37,72,569/-. The assessee has submitted before the AO that as per the provisions of section 35(2AB) of the Act weighted deduction of 150% to be allowed for expenditure (both capital and revenue) incurred on in-house research and developments by companies. The AO has disallowed the claim of deduction u/s 35(2AB) of Rs. 13, 37, 72,569/- and added it back to the taxable income of the assessee.

The CIT(A) held that the assessee is not entitled to claim weighted deduction at Rs.3,85,19,630/- as it is not approved from DSIR.

Observations by the Court

There is no quarrel on the proposition that the DSIR has approved the weighted deduction for capital expenses. Those expenses were in a sum of Rs. 2, 97, 57,596/- which is acknowledged in the assessment order by the AO. What has not been permitted u/s 35(2AB) of the Act by the DSIR is the weighted deduction for the claim for revenue expenditure. The Respondent’s case has been that if weighted deduction is not permitted for revenue expenses then at least normal deduction should be permitted for the R&D expenses which indeed had been incurred by the assessee wholly, necessarily and exclusively for the purpose of business. The CIT (A) has accepted the pleading of the assessee.

In view of the approval for capital expenses as granted by the DSIR, the claim as allowed by the CIT (A) and hence the same cannot be faulted. The claim for revenue expenses is required to be allowed even otherwise in terms of the regular provisions of the Income Tax Act.


The capital expenses incurred for R&D which is approved by Department Of Scientific and Industrial Research (DSIR) are allowed weighted deduction.


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