TOYO SPRINGS LIMITED,SONEPAT vs. INCOME TAX OFFICER, WARD-1, SONEPAT, SONEPAT

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘A’: NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTNAT MEMBER

ITA No.8999/DEL/2025 [Assessment Year: 2021-22] Toyo Springs Limited, Income Tax Officer, 6th KM Bahalgarh Road, Sonipat, Ward-1, X-2QC 457 Railway Station Haryana-131001 Vs Road, Railway Quarters, Indira Colony, Haryana-131001 PAN-AABCT0481G Assessee Revenue Assessee by Shri Tarun Batra, CA & Shri N.K. Chand, Adv. Revenue by Shri Ajay Kumar Arora, Sr. DR Date of Hearing 25.03.2026 Date of Pronouncement 24.06.2026

ORDER PER AMITABH SHUKLA, AM,

This appeal filed by the assessee is against order dated 12.11.2025 of the Learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, New Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order dated 27.12.2022 passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 pertaining to Assessment Year 2021-22. The word ‘Act’ herein this order would mean Income Tax Act, 1961.

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during the assessment year under consideration i.e. AY 2021-22. The ld. Counsel submitted that the appellant had incurred following expenditure on the approved R&D facility.

1 Revenue Expenditure (a) Material for testing and Research Rs.42,84,361/- (b) Salary for Research and Development Rs.69,11261/- (c) Sub-total 1,11,95 622 2 Capital Expenditure 4,09,850 3 Total expenditure on R&D 1,16,05,672

Particular Amount Amount (Rs) (Rs.) Claim @150% incurred 1 Revenue Expenditure 1,11,95 622 1,67,93,433 2 Capital Expenditure 4,09,850 6,14775 3 Total expenditure on R&D & 1,16,05,672 1,74,08,208 claim

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“…53. The learned AR before us pointed out that the AO disallowed the weighted deduction only on the ground that Form No. 3CL was not furnished during the assessment proceedings. It was argued that the denial of deduction was purely technical and procedural in nature, without doubting either the incurrence of expenditure or the eligibility of the R&D facility. The learned AR submitted that the assessee had Page 4 of 10

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complied with all substantive conditions under section 35(2AB) of the Act, including maintaining separate books of account, getting the accounts audited, and furnishing the audit report to DSIR in Form 3CLA. 53.1 It was further submitted that during the appellate proceedings, the assessee furnished Form No. 3CL issued by DSIR, wherein the expenditure eligible for weighted deduction was duly quantified. The learned AR argued that once Form 3CL is available on record, even if it is produced at the appellate stage, the benefit of weighted deduction cannot be denied. The learned AR emphasized that appellate proceedings are a continuation of assessment proceedings and all legitimate claims supported by evidence should be considered. 53.2 The learned AR strongly contended that Rule 6(7A), which mandates quantification of expenditure by DSIR, is a procedural mechanism and cannot override the substantive provision of section 35(2AB) of the Act. It was argued that section 35(2AB) itself does not restrict the weighted deduction only to the amount quantified by DSIR, unlike section 35(2B) of the Act, where the Act specifically uses the words "expenditure certified by the prescribed authority." Therefore, the Rule cannot curtail the scope of the deduction granted by the Act. 53.3 In this context, the learned AR relied on settled legal principles that rules framed under the Act cannot go beyond or override the provisions of the Act. Reliance was placed on judgments of the Hon'ble Supreme Court, including Assam Co. Ltd. v. State of Assam [2001] 248 ITR 567 and Commissioner of Income-tax v. S. Chenniappa Mudaliar [1969] 74 ITR 41 (SC), to submit that if there is any conflict between the Act and the Rules, the Act must prevail. 53.4 The learned AR further submitted that the mandate to quantify expenditure was introduced only by amendment to the Rules with effect from 01.07.2016, without any corresponding amendment to section 35(2AB) of the Act. Therefore, DSIR's role of quantification cannot be treated as determinative of the assessee's statutory entitlement under the Act. The assessee cannot be denied weighted deduction merely because DSIR has approved a lower amount in Form 3CL or has not quantified the entire expenditure. 53.5 Without prejudice, the learned AR submitted that even the expenditure not quantified by DSIR is otherwise allowable as scientific research expenditure under section 35(1)(i) of the Act, as it was incurred wholly and exclusively for the purposes of business. Alternatively, the same is allowable as revenue expenditure under section 37(1) of the Act. The nature of expenditure has never been disputed by the Assessing Officer.

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53.6 The learned AR also highlighted the object and intent behind section 35(2AB) of the Act, which is to promote and encourage in-house research and development activities in India. A hyper-technical interpretation denying weighted deduction for genuine R&D expenditure would defeat the very purpose of the incentive provision. In view of the above submissions, the learned AR prayed that the weighted deduction under section 35(2AB) of the Act should be allowed on the entire eligible expenditure incurred by the assessee for both the assessment years. Alternatively, it was prayed that the expenditure not approved or quantified by DSIR be allowed under section 35(1)(i) or section 37(1) of the Act, and the disallowance made by the lower authorities be deleted. 54. Per contra, the learned DR supported the action of the Assessing Officer and the lower authorities in denying the weighted deduction under section 35(2AB) of the Act. He argued that furnishing of Form No. 3CL, duly issued by DSIR, is a mandatory requirement for claiming weighted deduction. Since the assessee did not submit Form 3CL during the assessment proceedings, the AO was justified in disallowing the claim. 54.1 The ld. DR contended that section 35(2AB) read with Rule 6(7A) clearly envisages a role for DSIR not only in approving the R&D facility but also in quantifying the eligible expenditure. According to him, the weighted deduction can be allowed only to the extent of expenditure approved and certified by DSIR in Form 3CL. If DSIR has approved or quantified a lower amount, the assessee cannot claim a higher deduction on its own. 54.2 The learned DR further submitted that Rule 6(7A) is not merely procedural but is an integral part of the statutory mechanism for granting weighted deduction. The purpose of involving DSIR is to ensure that only genuine and eligible R&D expenditure receives the benefit. Therefore, the Assessing Officer cannot ignore the quantification made by DSIR and independently allow deduction on the entire expenditure claimed by the assessee. 54.3 The ld. DR also argued that allowing Form 3CL to be filed at the appellate stage would dilute the statutory requirement and render the assessment proceedings meaningless. According to him, compliance with procedural requirements at the appropriate stage is necessary, especially for incentive provisions which have to be strictly construed. 54.4 Without prejudice, the learned DR submitted that even if Form 3CL is now available, the deduction under section 35(2AB) should be restricted strictly to the amount quantified by DSIR and not beyond that. Any expenditure not approved or quantified by DSIR cannot qualify for weighted deduction.

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54.5 The learned DR further contended that the assessee cannot automatically seek allowance of the unapproved expenditure under section 35(1)(i) or section 37(1) of the Act. According to him, once a specific claim is made under section 35(2AB), the assessee must satisfy all the conditions of that provision, and failure to do so disentitles the assessee from alternative relief unless the claim is independently examined by the AO. 54.6 Accordingly, the learned DR prayed that the disallowance made by the Assessing Officer be upheld, or alternatively, that the weighted deduction be restricted only to the amount approved and quantified by DSIR in Form 3CL, and no further relief be granted. 55. We have carefully considered the rival submissions, perused the materials available on record, and examined the orders of the lower authorities. The issue before us is whether the assessee is entitled to weighted deduction under section 35(2AB) of the Act on the entire expenditure incurred on in-house research and development, including the portion of expenditure which was not quantified and approved by the DSIR in Form No. 3CL, for the assessment year under consideration. 55.1 The facts are not in dispute. The assessee incurred revenue expenditure of Rs.1,25,59,57,776 on in-house R&D activities. The R&D facility was duly approved by the DSIR. The assessee claimed weighted deduction at 150% under section 35(2AB) of the Act. The Assessing Officer restricted the deduction to 100% of the actual expenditure and disallowed the weighted portion solely on the ground that Form No. 3CL was not furnished during the assessment proceedings. Subsequently, during appellate proceedings, Form No. 3CL was produced, wherein the DSIR quantified and approved expenditure of Rs. 1,23,43,57,000, leaving a balance amount of Rs. 2,16,00,776 not quantified. 55.2 At the outset, we observe that the approval of the in-house R&D facility by the DSIR is an undisputed fact. The Assessing Officer has not questioned the genuineness of the expenditure, the nature of the expenditure, or the nexus of such expenditure with the assessee's business. The sole reason for disallowance of the weighted deduction is the non-furnishing of Form No. 3CL during the assessment proceedings and the partial quantification of expenditure by DSIR. 55.3 We now examine the legal position. Section 35(2AB) of the Act grants weighted deduction on expenditure incurred on approved inhouse research and development facilities. The section itself does not use the expression "expenditure certified by the prescribed authority." It only mandates approval of the facility by the prescribed authority. The requirement of quantification of expenditure by DSIR has been introduced by way of amendment to Rule 6(7A) of the Income-tax Rules

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with effect from 01.07.2016. Thus, the quantification requirement flows from the Rules and not directly from the substantive provision of the Act. 55.4 It is a settled principle of law that Rules framed under the Act cannot override or curtail the scope of the substantive provisions of the Act. If there is any conflict between the Act and the Rules, the Act must prevail. In the present case, section 35(2AB) of the Act does not restrict the allowance of weighted deduction only to the amount quantified by DSIR. Unlike section 35(2B) of the Act, where the statute expressly limits the deduction to the amount "certified" by the prescribed authority, no such restrictive language is found in section 35(2AB) of the Act. Therefore, the Rule cannot be interpreted in a manner so as to read into the section a limitation which the legislature itself has consciously not provided. 55.5 We further note that the assessee has complied with all substantive conditions prescribed under section 35(2AB) of the Act, namely maintaining separate books of accounts for the R&D facility, getting such accounts audited, and furnishing the audit report to DSIR in Form No. 3CLA. The delay or partial quantification by DSIR is an event over which the assessee has no control. The assessee cannot be made to suffer for administrative or procedural lapses on the part of the prescribed authority. 55.6 Coming to the aspect of Form No. 3CL being furnished at the appellate stage, it is well-settled that appellate proceedings are a continuation of assessment proceedings. Once Form No. 3CL is brought on record, even at the appellate stage, the claim cannot be rejected merely on the ground that it was not furnished before the Assessing Officer. The Assessing Officer's action may have been justified at the assessment stage due to non-availability of Form No. 3CL, but once the form is available on record, the claim has to be examined on merits in accordance with law. 55.7 As regards the portion of expenditure of Rs.2,16,00,776 which was not quantified by DSIR, we are of the considered view that mere nonquantification by DSIR cannot automatically render such expenditure ineligible for weighted deduction under section 35(2AB) of the Act, when the facility itself is approved and the expenditure is otherwise found to be incurred on in-house R&D activities. There is nothing on record to show that this expenditure falls outside the scope of approved R&D activities or is of a nature specifically excluded under the Act. 55.8 At the same time, we find merit in the alternative contention of the assessee that even if, for any reason, weighted deduction under section 35(2AB) is not granted on the unquantified portion, such expenditure is otherwise eligible for deduction under section 35(1)(i) of the Act, subject Page 8 of 10

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to verification, as it represents expenditure on scientific research related to the business of the assessee. The learned CIT(A) erred in holding that such alternative claim cannot be examined merely because it was not raised before the Assessing Officer. The powers of the appellate authority are co-terminus with that of the Assessing Officer, and a legitimate claim supported by facts and law cannot be rejected on technical grounds. 55.9 Considering the object of section 35(2AB) of the Act, which is to encourage and promote in-house research and development, we are of the view that a hyper-technical interpretation which denies weighted deduction on genuine R&D expenditure would defeat the legislative intent. Incentive provisions should be construed liberally, so long as the basic conditions prescribed by law are fulfilled. In view of the above discussion, we hold that the assessee is entitled to weighted deduction under section 35(2AB) of the Act on the entire eligible expenditure incurred on its approved in-house R&D facility. Alternatively, and without prejudice, the expenditure of Rs.2,16,00,776, which was not quantified by DSIR, is directed to be allowed under section 35(1)(i) of the Act, subject to verification by the Assessing Officer that the expenditure is indeed incurred on scientific research related to the assessee's business. Accordingly, the disallowance sustained by the learned CIT(A) is set aside. The Assessing Officer is directed to grant appropriate relief in accordance with law. The ground raised by the assessee is allowed….” 11. We have noted that the facts of the present case are identical to those in the case of Edgeverve Systems (supra) and no distinguishment of facts could be pointed out by the respondent Revenue. We are of the considered view that for non-submission of 3CL in time, which is not in control of the assessee, the assessee cannot be penalized. Availability of approval of Department of Scientific and Research to conduct R & D shall suffice for a claim under section 35(2AB). Accordingly, in respectful compliance to the decision in the case of Edgeverve Systems (supra), we set-aside the order of the lower authorities and direct the ld. AO to allow the assessee deduction u/s 35(2AB). The exact amount of allowance shall be recalculated by the ld. AO in the light of the fact that the assessee has itself admitted that it has wrongly claimed disallowance @150% as against permissible 100%. The Ld. AO shall accordingly do a limited Page 9 of 10

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verification of figures, recalculate deduction u/s 35(2AB) and allow the same. The appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 24th June, 2026. Sd/- Sd/- [MADHUMITA ROY] [AMITABH SHUKLA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 24.06.2026 Shekhar Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi,

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