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ITAT Deletes ₹2.45 Cr R&D Disallowance for Exceeding Scrutiny
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Income Tax Appellate Tribunaltax

ITAT Deletes ₹2.45 Cr R&D Disallowance for Exceeding Scrutiny

October 14, 2026

ITAT deletes ₹2.45 crore addition on R&D expenses, holding AO exceeded 'limited scrutiny' scope without prior approval for new issues.

The Income Tax Appellate Tribunal (ITAT) has deleted a ₹2.45 crore addition made by the Assessing Officer (AO) on in-house research and development (R&D) deductions, ruling that the AO exceeded the permissible scope of 'limited scrutiny' under Rule 14A(3) of the Income Tax Rules, 1962.

The audit party challenged only specific notified issues during scrutiny proceedings. However, the AO raised disallowance on R&D expenditure under Section 35(2AB), which required prior approval under CBDT guidelines to initiate examination on non-notified matters.

The AO cannot independently expand the scope of limited scrutiny without such authorization,
the Tribunal held.

The decision reinforces procedural safeguards in limited scrutiny assessments. Practitioners should ensure that any examination of unnotified heads of income or deductions is supported by valid approval. Where absent, such additions are liable to be deleted on grounds of jurisdictional overreach.

Citations

  • Income Tax Act, 1961, Section 35(2AB)
  • Income Tax Rules, 1962, Rule 14A(3)
Practice Areas:tax

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