AEON FORMULATIONS PRIVATE LIMITED,CHENNAI vs. INCOME TAX OFFICER, CORPORATE WARD 2(1), CHENNAI, CHENNAI

ITA 2481/CHNY/2026Status: DisposedITAT Chennai12 October 2026AY 2018-1918 pages
AI SummaryAllowed

What were the facts?

The assessee, AEON Formulations Pvt. Ltd., filed its return for Assessment Year 2018-19 declaring a loss after claiming a deduction under Section 35(2AB) of the Income-tax Act, 1961. The case was selected for Limited Scrutiny to examine "Deduction on account of donation for Scientific Research" and "Duty Drawback". During the assessment, the Assessing Officer (AO) examined the assessee's claim for weighted deduction under Section 35(2AB) for in-house R&D expenditure. The AO disallowed Rs. 2,45,55,010/- of the claimed deduction, limiting it to Rs. 76.11 lakhs based on Form No. 3CL. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], challenging the disallowance and the AO's jurisdiction to examine the Section 35(2AB) claim in a Limited Scrutiny assessment. The CIT(A) upheld the disallowance and the AO's jurisdiction.

What did the Tribunal hold?

The Tribunal held that the Assessing Officer (AO) travelled beyond the permissible scope of Limited Scrutiny. The notified issue, "Deduction on Account of Donation for Scientific Research", could not be interpreted to encompass expenditure on an in-house R&D facility under Section 35(2AB) of the Act, as these are distinct transactions with different conditions. The Tribunal found no evidence that the AO received credible information regarding tax evasion from any authority or that the prescribed reasons were recorded and prior administrative approval of the Pr.CIT/CIT was obtained for taking up this additional issue. Sections 292B and 124(3)(a) were held inapplicable. The disallowance of Rs. 2,45,55,010/- made under Section 35(2AB) was therefore unsustainable in law. The CIT(A)'s finding was reversed, and the AO was directed to delete the disallowance. The issue regarding depreciation on capitalised R&D expenditure was restored to the AO by the CIT(A) and was not decided by the Tribunal. The appeal of the assessee was allowed.

What were the issues?

1. Whether the Assessing Officer (AO) erred in upholding the disallowance of Rs. 2,45,55,010/- under Section 35(2AB) of the Income-tax Act, 1961, given that the assessment was selected for Limited Scrutiny on specific issues, and the AO's examination of the Section 35(2AB) claim went beyond the notified scope. 2. Whether the CIT(A) ought to have quashed the assessment order as it was passed without the prior approval of the administrative Principal Commissioner of Income Tax (PCIT). Assessee's Contentions: - The disallowance under Section 35(2AB) was made beyond the permissible scope of the Limited Scrutiny assessment, which was specifically for "Deduction on account of Donation for Scientific Research", not for in-house R&D expenditure. - The AO lacked jurisdiction to examine the Section 35(2AB) claim without converting the Limited Scrutiny to Complete Scrutiny as per procedure. - The assessment order was passed without obtaining prior approval from the administrative PCIT. Revenue's Contentions (as gathered from the CIT(A)'s order and Tribunal's discussion): - The AO justified examining the Section 35(2AB) claim as it broadly fell within the scheme of Section 35 of the Act. - The assessee participated in the proceedings and accepted the eligible deduction as per Form No. 3CL. - Reliance was placed on Sections 292B and 124(3)(a) of the Act.

Which sections of the Income-tax Act were involved?

Section 35(2AB),Section 143(3),Section 35,Section 32,Section 292B,Section 124(3)(a),Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA

Hearing: 23.09.2026Pronounced: 12.10.2026

PER S. R. RAGHUNATHA, AM : This appeal by the assessee is directed against the order dated 12.02.2026 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “the Ld. CIT(A)”], arising out of the assessment order dated 22.02.2021 passed by the National e-Assessment Centre

The order continues below.

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