S. 80IB : Industrial undertakings-Special category States-Research & Development (R&D) expenditure-Allocation of R&D expenses to eligible manufacturing units-No allocation permissible in the absence of direct nexus between R&D activity and eligible units – Revenue’s appeal dismissed. [S. 35(2AB), 80IC, 260A]
The assessee claimed weighted deduction under section 35(2AB) in respect of R&D expenditure incurred by its DSIR-approved research units and deduction under sections 80-IB/80-IC in respect of profits of eligible manufacturing units. The Assessing Officer allocated a portion of the R&D expenditure to the eligible units and reduced the deduction under sections 80-IB/80-IC. The CIT(A) and the Tribunal, on appreciation of the factual record, found that the R&D units were independent, situated separately, maintained separate accounts, and were engaged in developing future products unrelated to the products manufactured by the eligible units during the relevant year. The Tribunal further found that the Revenue had failed to establish any nexus between the R&D expenditure and the eligible manufacturing units. Dismissing the Revenue’s appeal, the Bombay High Court held that only expenditure having a direct nexus with the concerned industrial undertaking can be allocated while computing deduction under sections 80-IB/80-IC. In the absence of any material to establish that the R&D expenditure pertained to the eligible units, the allocation made by the Assessing Officer was wholly unjustified. The issue was essentially factual and did not give rise to any substantial question of law. (AY. 2012 -13 ) (ITXA No. 267 of 2024, dt. 03-07-2026)
Pr. CIT v. Macleods Pharmaceuticals Ltd. (Bom.)(HC)(www.itatonline.org]
[Coram : Hon’ble Shri Justice G. S. Kulkarni
and Hon’ble Ms. Justice Aarti A. Sathe]