Loading judgment…
Facts
The assessee claimed deduction for Scientific Research & Expenditure under Section 35(2AB) of the Income Tax Act for AY 2018-19. The Assessing Officer disallowed the claim for not furnishing Form 3CL within the prescribed time. The CIT(A) confirmed the disallowance.
Held
The Tribunal noted that while the assessee failed to furnish Form 3CL on time, the DSIR did approve the expenditure. However, the DSIR's approval quantified the eligible deduction amount lower than claimed by the assessee. Consequently, the Tribunal restricted the deduction to the amount quantified by DSIR.
Key Issues
Whether the disallowance of deduction under Section 35(2AB) was justified due to non-submission of Form 3CL, and if the deduction can be restricted to the DSIR-approved amount.
Sections Cited
35(2AB), 143(2), 142(1), 37, 35(1)(i), 35(1)(iv)
AI-generated summary — verify with the full judgment below
Before: Shri S.S. Viswanethra Ravi&
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order dated 14.11.2024 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2018-19.
As per concise grounds of appeal, Ground Nos. 1 & 2 raised by the assessee is general in nature and requires no adjudication.
3. Ground Nos. 3 to 6 raised by the assessee in the concise grounds as to whether the ld. CIT(A) is justified in confirming the disallowance of deduction claimed under section 35(2AB) of the Income Tax Act, 1961 [“Act” in short].
Brief facts relating to the case are that the assessee filed return of income for AY 2018-19 declaring income at (-) ₹.76,53,449/- on 24.10.2018. The return filed by the assessee was selected for complete scrutiny and the Assessing Officer issued notice under section 143(2) of the Act on 22.09.2019. Notice under section 142(1) of the Act was also issued on 22.02.2021. According to the Assessing Officer the assessee claimed revenue expenditure of ₹.2,71,50,054/- and capital expenditure of ₹.1,36,13,352/- towards Scientific Research & Expenditure under section 35(2AB) of the Act and called for various details. Since the assessee could not furnish the details, the Assessing Officer issued show-cause notice proposing the disallowance of deduction of ₹.6,11,45,110/- under section 35(2AB) of the Act. In response to the show-cause notice, the written submissions filed by the assessee on 31.03.2021 are extracted at page 2 & 3 of the assessment order. According to the Assessing Officer, the assessee failed to furnish Form 3CL within one hundred and twenty days of the submission of audit report and therefore, held that the assessee is not eligible for deduction under section 35(2AB) of the Act.
Thus, the Assessing Officer disallowed the claim of deduction of ₹.6,11,45,110/- under section 35(2AB) of the Act and added to the total income of the assessee. The ld. CIT(A) confirmed the disallowance of deduction made by the Assessing Officer.
The ld. AR Mrs. Sandhyaarthi, C.A. drew our attention to pages 16 to 38 of the paper book and submits that the assessee has submitted Form 3CK for approval in Form 3CM. She drew our attention page 39 of the paper book and submits that the DSIR conveyed orders of approval of in-house Research and Development facility under section 35(2AB) of the Act in Form 3CM. She further drew our attention to pages 40 & 41 of the paper book the report to be submitted by the prescribed authority of DSIR to the Income-tax Authority under section 35(2AB) of the Act in Form 3CL duly approving the expenditure. The ld. AR argued that the assessee has duly furnished Form 3CL before the ld. CIT(A) and the ld. CIT(A) ought to have allowed the deduction to the extent approved in Form 3CL and the remaining capital expenditure and revenue expenditure should have been allowed under section 37 of the Act. She drew our attention to first appellate orders in assessee’s own case for AY 2012-13 & 2013-14 as well as giving effect to the order of ld. CIT(A), wherein, the ld. CIT(A) directed the Assessing Officer to allow the expenditure, which is revenue in nature under section 37(1) of the Act and consequently, the Assessing Officer passed order giving effect to the order of ld. CIT(A) for both the assessment years.
The ld. DR Ms. R. Anita, Addl. CIT submits that the assessee failed to furnish the bills/vouchers as sought by the ld. CIT(A) during the appellate proceedings and even before the Tribunal. She submits that the claim of expenditure under section 35(2AB) of the Act may be allowed to restrict to the extent the DSIR approved the expenditure. The ld. DR placed reliance on the decision of the Hon’ble Supreme Court in the case of Drilcos India Pvt. Ltd. v. CIT (2012) 25 Taxman.com 228 (SC) (348 ITR 382) and submits that once the assessee is claiming deduction under section 35(2AB) of the Act, no other claim of deduction under section 37 of the Act shall be allowed.
Heard both the parties and perused the material available on record. Since the assessee could not furnish Form 3CK, Form 3CM and From 3CL, the Assessing Officer disallowed the claim of deduction under section 35(2AB) of the Act. We have perused Form 3CK, approval of DSIR conveyed through Form 3CM and Form 3CL placed on record in the form of paper book, wherein, the DSIR agreed for the expenditure to be claimed under section 35(2AB) of the Act. We note that in Form 3CL for the year under consideration, the amount quantified for the claim of deduction under section 35(2AB) of the Act for R&D expenditure is only to an extent of ₹.3,45,62,000/- as certified by the Joint Secretary for and on behalf of the Secretary, DSIR vide order dated 14.09.2021, which is on record, as against the claim of ₹.6,11,45,110/- made by the assessee before the Assessing Officer. Accordingly, we restrict the claim of expenditure at ₹.3,45,62,000/- as quantified by the DSIR.
We have also considered the plea taken by the assessee that the revenue expenses of ₹.61,90,054/- being the difference in the revenue expenditure claimed in relation to in house R&D facility and that approved by the DSIR in Form 3CL and an amount of ₹.11,353/- being the difference in capital expenditure claimed and approved to be allowed under section 35(1)(i)/37 & 35(1)(iv) of the Act, but, however, in view of the judgement of the Hon’ble Supreme Court in the case of Drilcos India Pvt. Ltd. v. CIT (supra), wherein, the Hon’ble Supreme Court was pleased to hold that “once section 35AB of the Act comes into play, then section 37 of the Act has no application, the plea of the assessee stands rejected.
Ground No. 7 raised by the assessee as per concise grounds is dismissed as not pressed.
In ground No. 8, the assessee has agitated that the ld. CIT(A) failed to adjudicate the issue relating to Dividend Distribution Tax (DDT) liability and the ld. AR has submitted that the DDT liability was discharged by the assessee, but, however, incorrect assessment year i.e., 2017-18 was mentioned in the challan in place of AY 2018-19 which is the year under consideration. In view of the above facts, we direct the Assessing Officer to verify and consider the same in accordance with law.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced on 14th August, 2025 at Chennai.