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Facts
The assessee, a limited company engaged in manufacturing electrical and electronic parts, claimed a deduction of Rs. 2,02,54,110/- under Section 35(2AB) for R&D expenses. The Assessing Officer disallowed this claim due to the non-submission of mandatory Forms 3CM and 3CL.
Held
The Tribunal held that the CIT(A) was correct in allowing the deduction. Although the forms were not submitted during the assessment proceedings, they were later provided as additional evidence, and the DSIR report confirmed eligible expenditure.
Key Issues
Whether the weightage deduction under Section 35(2AB) for R&D expenditure can be allowed when the prescribed forms (3CM and 3CL) were submitted belatedly as additional evidence during appellate proceedings.
Sections Cited
35(2AB), 143(3), 142(1), 271(1)(c), 37
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the Revenue is directed against the order dated 19.03.2024 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi [“CIT(A)/NFAC”] pertaining to Assessment Year (“AY) 2016-17.
Briefly stated the facts are that the assessee is a limited company and was engaged in manufacturing, assembling, processing, importing, exporting, fabricating and dealing in various kinds of electrical and electronic parts, components, instruments, apparatus, assemblies and sub assemblies and accessories required for automobiles and engineering industry such as relay switches, flashers, head-lamps, indicators, regulators, Car Security System. For AY 2016-17, the assessee filed its return of income on 01.10.2016 declaring total income of Rs.7,52,87,300/- and claimed deduction of Rs.2,02,54,110/- u/s 35(2AB) of the Income Tax Act, 1961 (the “Act”) being 200% of the amount spent on Research and Development. The case of the assessee was selected for scrutiny under CASS. Statutory notice(s) u/s 143(2)
and 142(1) along with questionnaire were accordingly issued and served upon the assessee calling for details/documents in relation to the said deduction claimed by the assessee. In response thereto, the assessee filed the relevant submissions along with supporting documentary evidences which were verified and placed on record by the Ld. Assessing Officer (“AO”). The Ld. AO denied the deduction claimed by the assessee u/s 35(2AB) of the Act for the reason that Form No. 3CM and 3CL has not been submitted by the assessee. He, therefore, proceeded to complete the assessment at assessed income of Rs.9,55,41,410/- by making addition of Rs.2,02,54,110/- to the income of Rs.7,52,87,300/- returned by the assessee vide his order dated 30.12.2018 passed u/s 143(3) of the Act by observing as under : “4. Disallowance of Expenses u/s 35(2AB) of the Act On perusal of the ITR filed and financial statements furnished it is noticed that the assessee has claimed deduction u/s. 35 (2AB) related to R&D activity amounting to Rs. 2,02,54,110/- in its computation and also in return of income. During the course of assessment proceedings, vide notice u/s 142(1) of the Act dtd. 22/12/2018, the assessee was asked to submit requisite certificate which is mandatory for claiming the deduction u/s. 35(2AB) of the Act, i.e. Form No. 3CM, Form 3CL, etc. The A.R of the assessee during the proceedings contended that all the compliances regarding approved scientific facility has been made from the side of assessee, however Form No. 3CM and Form No. 3CL is not yet received. The assessee made written submission on 29.12.2018 wherein the same contention was raised. The assessee also submitted copies of correspondences made with the prescribed authority. 4.1 Considering the assessee's contention and fact of the case, it is clear that assessee company was not issued Form No. 3CM i.e. re-cognition certificate for in-house R&D activity for the site where R&D activity was carried out from the prescribed authority i.e. DSIR also Form No. 3CL was not issued quantified the expenditure eligible for weighted deduction. Non-submission of said certificate clearly indicates that the assessee company was not eligible for weighted deduction for the year under consideration. However the assessee has claimed weighted deduction. In absence of the Form No. 3CL it is not ascertainable that what amount actually incurred towards R&D activity and eligible for deduction u/s. 35 (2AB). In view of the above, the weighted deduction claimed by the assessee of Rs. 2,02,54,110/- is hereby disallowed and made to the total income of the assessee. Expenditure @100% of actual expenditure incurred is allowed. Penalty proceedings u/s 271(1)(c) of the Income tax Act, for concealment of particulars of income/ furnishing inaccurate particulars of income are initiated separately. [Addition: Rs.2,02,54,110/-].”
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)/NFAC. Before the Ld. CIT(A)/NFAC the assessee submitted that the assessee company has been an approved organization by the prescribed authority and claiming the said deduction since Financial Year 2012-13. During the year under consideration also, expenditure incurred for Research and Development was submitted for the approval of the prescribed authority well in time. However, the approval certificate was not received by the assessee till assessment proceedings were going on. But assessee had during the course of hearings filed all the copies of papers submitted to the prescribed authority for requisite approval before the Ld. AO informing him that issuance of the certificate(s) is beyond the control of the assessee, however all necessary papers have been put on record. Certificates in Form No. 3CM and 3CL have been received now and copies of the same are submitted. The assessee requested the Ld. CIT(A)/NFAC that these Certificates may be taken on record as additional evidences and the deduction claimed by the assessee be allowed as the disallowance made by the AO was solely on the ground of non availability of these Certificates. The Ld. CIT(A)/NFAC after considering the reply of the assessee and taking into account the revised computation of claim of deduction as per DISR report filed by the assessee allowed the claim of deduction amounting to Rs.1,98,64,000/- by observing as under : “5. Aggrieved with the assessment order the appellant filed this appeal. During the appellate proceeding the appellant submitted that during the year under consideration expenditure incurred for R&D was submitted for approval to the prescribed authority well in time. However, the approval certificate was not received by the appellant during the assessment proceedings. However, the subject matter of disallowance ie Certificate in Form No. 3CL and Form No. 3CM was received by the appellant in later course of time and submitted during appellate proceeding. These Certificates were taken on record as additional evidence and asked for a remand report from the jurisdictional Assessing Officer. Considering the Certificates issued by the DSIR the Assessing officer reported that as per DSIR report eligible expenditure for revenue is Rs. 112.10 lacs and expenditure for capital Rs. 43.27 lacs and the company is entitled for deduction u/s 35 (2AB) of the Act. at Rs. 3,10,74,000/-(Rs. 2,24,20,000/- towards Revenue & Rs. 86,54,000 towards capital) only as against deduction claimed u/s 35(2AB) of the Act at Rs. 3,18,01,314/-. The appellant was asked for comment on the remand report. In a reply on 19.12.2019 the appellant stated... However expenditure which was not approved by the DSIR, should be allowed as business expenditure u/s 37. The reply of the appellant was considered and found tenable, the revised income after considering the DSIR report should be as below. Sl No. Particulars Amount 1 Income as per Return of Income 7,52,87,300 2 Add: Addition by Assessing Officer 2,02,54,110 3 Income Assessed by AO 9,55,41,410 4 5 Less: Deduction as per DSIR Report 6 Capital (43.27 lacs*2) 86,54,000 7 Revenue (112.10 lacs) 1,12,10,000 Total 1,98,64,000 Net Total income (3-4) 7,56,77,410
Dissatisfied, the Revenue is in appeal before the Tribunal raising the following solitary ground of appeal : “The CIT(A), NFAC, New Delhi has erred in allowing the claim of R&D expenditure with weightage deduction u/s 35(2AB) at Rs. 1,98,64,000/- in the assessment order passed u/s 143(3) of the Act on 30/12/2018 by assessing officer for A.Υ. 2016-17.”
The Ld. DR relied on the order of the Ld. AO. He submitted that since Form No. 3CM and 3CL which is mandatory to be filed for claiming deduction u/s 35(2AB) of the Act was not filed by the assessee and therefore the Ld. AO was completely justified in denying the deduction claimed by the assessee. According to the Ld. DR, Form No. 3CM and 3CL were filed for the first time by the assessee before the Ld. CIT(A)/NFAC. The Ld. CIT(A)/NFAC allowed the claim of the assessee based on the revised computation filed by the assessee as per the DSIR report to the extent of Rs.1,98,64,000/-. Therefore, the matter should be set aside to the file of the Ld. AO for verification of the deduction claimed by the assessee.
The Ld. AR, on the other hand, strongly supported the order of the Ld. CIT(A)/NFAC. She submitted that during the assessment proceedings although Form No. 3CM and 3CL could not be filed, the assessee had submitted all the required documents before the Ld. AO which were filed for seeking approval from the prescribed authorities (DSIR) for obtaining certificates in Form No. 3CM and 3CL. During the appellate proceedings, the assessee filed Form No. 3CM and 3CL issued by the DSIR and the Ld. CIT(A)/NFAC after considering the same has allowed the assessee’s claim of deduction to the tune of Rs.1,98,64,000/-.
We have heard the Ld. Representatives of the parties and perused the material available on record. The Ld. AO rejected the assessee’s claim of deduction u/s 35(2AB) of the Act for the reason of non-availability of certificate(s) in Form No. 3CM and 3CL issued by the DSIR. The assessee obtained the said certificate(s) subsequently, a copy of which is placed at pages 4 and 5 of the paper book and submitted these certificate(s) before the Ld. CIT(A)/NFAC during the course of appellate proceedings before him. We observe that the Ld. CIT(A)/NFAC called for a remand report from the Ld. AO. The Ld. AO’s reply dated 29.11.2019 is reproduced below :
The assessee was also asked for its comments on the remand report of the Ld. AO in response to which the assessee filed its reply on 19.12.2019 as under :
It is thus clear from the above that although the certificates in Form No. 3CM and 3CL were filed as an additional evidence, the Ld. CIT(A)/NFAC had called for a remand report from the Ld. AO and only after considering the reply of the Ld. AO and reply of the assessee on the remand report, the Ld. CIT(A)/NFAC allowed the assessee’s claim of deduction u/s 35(2AB) of the Act amounting to Rs.1,98,64,000/-. Under these circumstances and considering the totality of the facts, we do not find any infirmity in the order of the Ld. CIT(A)/NFAC. There is no merit in the ground raised by the Revenue which we hereby dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 09th December, 2025.