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Facts
Cooper Corporation Pvt. Ltd. claimed a deduction of Rs. 12,69,17,337/- under Section 35(2AB) for in-house research and development expenses. The Assessing Officer and CIT(A)/NFAC disallowed this claim because the assessee failed to furnish the mandatory Form 3CL certificate from DSIR, which certifies actual R&D expenditure. The assessee later obtained Form 3CL after filing a Writ Petition.
Held
The Tribunal observed that the Form 3CL was obtained subsequent to the assessment and initial appellate proceedings. In light of this new evidence, and to ensure justice, the Tribunal remanded the issue back to the Assessing Officer to verify the Form 3CL and re-adjudicate the claim for deduction under Section 35(2AB) in accordance with the law.
Key Issues
The primary issue was the allowability of deduction under Section 35(2AB) of the Income Tax Act, 1961, in the absence of Form 3CL certificate from DSIR, and whether subsequent availability of the certificate warrants re-adjudication.
Sections Cited
35(2AB), 143(2), 142(1), 35(1)(iv), 35(1)(i)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
This appeal filed by the assessee is directed against the order dated 03.12.2024 of the Ld. CIT(A) / NFAC, relating to assessment year 2020-21.
Although a number of grounds have been raised by the assessee, however, these all relate to the order of the Ld. CIT(A) / NFAC in confirming the disallowance of deduction of Rs.12,69,17,337/- u/s 35(2AB) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) being one and one-half times of the eligible expenditure of Rs.8,46,11,558/- incurred on in-house Research and Development facility.
Facts of the case, in brief, are that the assessee is a Private Limited company engaged in the business of manufacture and sale of various engine components. It filed its return of income for the year under consideration on 12.02.2021 declaring taxable income of Rs.40,53,11,570/- which was revised on 29.03.2021 declaring taxable income of Rs.40,23,86,800/-. The case of the assessee was selected for complete scrutiny under CASS. Accordingly, statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee in response to which the AR of the assessee filed the requisite details from time to time.
During the course of assessment proceedings the Assessing Officer noted that the assessee has claimed deduction of Rs.12,69,17,337/- u/s 35(2AB) for in house research and development work in their in house research facility. The assessee company has claimed total expenses of Rs.8,46,11,588/- during the year on research and development (Rs.3,11,27,790/- as capital expenditure and Rs.5,34,83,768/- as revenue expenditure). On verification of submissions made by the assessee in support of claim of deductions the Assessing Officer noted that the assessee company has submitted form 3CM order of approval of In house Research Development facility from DSIR, Govt. of India. However, the assessee company has not furnished copy of Form 3 CL-Report to be submitted by the secretary DSIR certifying the expenditure related to Research and development activities during the year. According to the Assessing Officer Form 3CM is only an approval from secretary DSIR for the assessee in house research facility and this approval does not certify that the assessee has actually carried out any research and development activities during the period. Only in form 3CL, the secretary, DSIR certifies that actual research and development work has taken place during the year. Since the assessee has confirmed that so far they have not obtained the certificate in Form 3CL, therefore, in the absence of form 3CL from the Secretary DSIR, the Assessing Officer disallowed the claim of deduction of Rs.12,69,17,337/- u/s 35(2AB) of the income Tax Act, 1961 and added back the same to the total income.
In appeal the Ld. CIT(A) / NFAC sustained the disallowance of Rs.12,69,17,337/- made by the Assessing Officer by observing as under: 1. Ground no.1 to 3 objects to disallowance of deduction claimed u/s. 35(2AB) for not fulfilling all the conditions prescribed under section 35(2AB). It was noticed from the records available that the assessee has claimed deduction of Rs.126917337/- u/s 35(2AB) for in house research and development work in their in house research facility. The assessee company has claimed total expenses of Rs.84611588 during the year on research and development (Rs.31127790/- as capital expenditure Rs.53483768/- and as revenue expenditure). On verification of submissions made by the assessee in support of claim of deductions were verified and found that the assessee company has submitted form 3CM order of approval of In house Research Development facility from DSIR, Govt. of India. The assessee company has not furnished copy of Form 3 CL-Report to be submitted by the secretary DSIR certifying the expenditure related to Research and development activities during the year. Form 3CM is only an approval from secretary DSIR for the assessee in house research facility, this approval does not certify that the assessee has actually carried out any research and development activities during the period. Only in form 3CL, where the secretary, DSIR is certifying the actual research and development work taken place during the year. Since the assessee has confirmed that so far they have not obtained the certificate in Form 3CL, therefore, in the absence of form 3CL from the Secretary DSIR, the claim of deduction of Rs.126917337/- u/s 35(2AB) of the income Tax Act, 1961 is disallowed and added back to the total income. The disallowance of Rs.126917337/- claimed as deduction u/s 35(2AB) is confirmed.”
The alternate claim of the assessee that the deduction u/s 35(1)(iv) of the Act and u/s 35(1)(i) of the Act should be allowed was also rejected by the Ld. CIT(A) / NFAC by observing as under: “2. Ground 4 & 5 objects to not allowing deduction u/s.35(1)(iv) and 35(1)(i). After giving due consideration to the assessee's submissions as above and the oral submissions made through Video conference on 19.09.2022 the claim of the assessee of deduction of Rs.12,69,17,337/- u/s.35(2AB) of the Act, is disallowed. The assessee has requested to allow Rs.53483768/- u/s.35(1)(i) as revenue expenditure on research and development and Rs.31127790/- u/s 35(1)(iv) as expenditure in nature of capital expenditure is considered and cannot be accepted since, the assessee has not claimed these originally. The assessee has claimed deduction u/s.35(2AB) without obtaining certificate in form 3CL from The secretary, DSIR on 02.11.2021 the secretary DSIR has not issued the certificate in Form 3 CL, till date. It implies that the assessee has not complied with all requirements of the DSIR for obtaining certificate in form 3CL. Hence the request made by the assessee to allow deductions u/s. 35(1)(i) and 35(1)(iv) if not u/s. 35(2AB) is not accepted.”
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.
The Ld. Counsel for the assessee at the outset submitted that the assessee has obtained the Form No.3CL issued by the DSIR on 16.12.2022, copy of which is placed at page 164 of the paper book. He submitted that since the disallowance of deduction u/s 35(2AB) of the Act was made on account of non-receipt of Form No.3CL issued by the DSIR, therefore, he has no objection if the matter is restored to the file of the Assessing Officer with a direction to verify the same and allow the necessary deduction in accordance with law.
The Ld. DR also fairly conceded that the Form No.3CL issued by the DSIR on 16.12.2022 was not available either during the course of assessment proceedings or during the course of appellate proceedings, therefore, he has no objection if the matter is restored to the file of the Assessing Officer for adjudication of the issue afresh.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute in the instant case is regarding the disallowance of deduction u/s 35(2AB) of the Act on account of non-availability of Form No.3CL issued by the DSIR. It is an admitted fact that Form No.3CL was issued by the DSIR on 16.12.2022 only after the assessee filed a Writ Petition before the Hon’ble Delhi High Court. Since the above certificate was not available either during the course of assessment proceedings or during appellate proceedings and since it has a bearing on the matter, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee on this issue along with other alternate grounds are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 22nd May, 2025.