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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
ORDER \nPER MAKARAND V. MAHADEOKAR, AM:\nThis appeal is filed by the assessee against the order passed by the\nPrincipal Commissioner of Income Tax, Vadodara-1 [hereinafter referred to\nas “PCIT"], dated 29.02.2024, under section 263 of the Income Tax Act, 1961\n[hereinafter referred to as “the Act”] for the Assessment Year (AY) 2018–19,\nsetting aside the assessment order dated 12.04.2021 passed by National\ne-Assessment Centre, Delhi (Assessing Officer) [hereinafter referred to as\n“AO”] under section 143(3) r.w.s.143(3A) and 143(3B) of the Act.\nITA No.551/Ahd/2024\nGujarat Metal Cast Industries Pvt.Ltd. vs. Pr.CIT\nAsst. Year: 2018-19\n2\nFacts of the Case:\n2. The assessee is engaged in the business of manufacturing steel and\nsteel metal casting and forging. The assessee filed its return of income for the\nA.Y. 2018-19 on 20.09.2018 declaring total income of Rs.3,29,04,740/-. The\nreturn was selected for scrutiny under CASS, and assessment was completed\nunder section 143(3) r.w.s.143(3A) and 143(3B) of the Act on 12.04.2021 by\nthe AO, accepting the returned income without any modification.\n3. During the assessment proceedings, the assessee claimed deduction\nunder section 35(2AB) of the Act of Rs.1,03,82,195/- on account of in-house\nresearch and development expenditure. The said claim was allowed by the\nAO after calling for details through notices under section 142(1) of the Act\nand examining the submissions of the assessee.\n3.
Subsequently, the Ld. PCIT invoked jurisdiction under section 263 of\nthe Act and issued show-cause notice to the assessee stating that the order\npassed by the AO was erroneous and prejudicial to the interest of the\nrevenue, as the deduction under section 35(2AB) of the Act was allowed\nwithout verifying whether the assessee submitted Form 3CL from the\nprescribed authority and at the rate of 200%, whereas the applicable rate as\nper the amended provision was 150% from 01.04.2018.\n4. After considering the reply of the assessee, the Ld. PCIT held that the\nAO failed to examine the statutory conditions for allowing deduction under\nsection 35(2AB) of the Act and allowed excess deduction without verifying\nForm 3CL. The PCIT, accordingly, set aside the assessment order with a\ndirection to the AO to pass a fresh order de novo.\n Metal Cast Industries Pvt.Ltd. vs. Pr.CIT\nAsst. Year: 2018-19\n3\n5. Aggrieved by the order of the PCIT, the assessee is in appeal before us\nraising following grounds of appeal:\n6.
1. The Ld. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263\nof the Act on the erroneous ground that the impugned assessment order is erroneous\nin so far as it is prejudicial to the interest of the revenue.\n2. Ld. PCIT has grossly erred in not appreciating that in order to invoke s.263, two\nconditions must be fulfilled viz. the impugned assessment order must be erroneous\nand that error must be prejudicial to the interest of the revenue. In the present case,\nld. AO has passed the reasoned assessment order after analyzing all details and\ntherefore there was no error in the impugned assessment order so as to justify action\nu/s.263 of the Act. Under the circumstances, the very assumption of power u/s.263\nof the Act is unjustified and bad in law and therefore, order u/s.263 of the Act\ndeserved to be quashed.\n3. The subject order u/s.263 passed by the Ld. PCIT is illegal and bad in law in absence\nof any finding of Ld. PCIT how the alleged error of AO has resulted in loss of revenue\nparticularly when deduction u/s.35(2AB) of the Act has rightly been claimed.\n4. The Ld. PCIT has further erred in law and on facts in not appreciating that the view\ntaken by the AO is a possible view and hence the proceedings are illegal and bad in\nlaw.\n5. The ld. PCIT has further erred in law in not coming to any concrete conclusion and\nwithout conducting any inquiry or investigating the issue, merely directed the AO\nto frame the assessment order afresh. Without there being any positive finding about\norder being erroneous and prejudicial to the interest of the revenue, the action of Id.\nPCIT is without jurisdiction and illegal and hence deserves to be deleted.\n6. Ld. PCIT has erred in not considering various facts, submissions, explanations and\nclarifications as given by the appellant and further erred in not appreciating the facts\nand law in their proper perspective.\n7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or\nany of the grounds of appeal at the time of or before the hearing of the appeal.\nDuring the course of hearing before us, the learned Authorized\nRepresentative (AR) relied upon the assessment order and reiterated that the\nAO had issued notices under section 142(1) of the Act, called for details\nincluding those relating to deduction under section 35(2AB), and after\n Metal Cast Industries Pvt.Ltd. vs. Pr.CIT\nAsst. Year: 2018-19\n4\nexamining the same, accepted the claim of the assessee. It was submitted that\nall documents including approval in Form 3CM, auditor's certificate, and\ncomputation were submitted, and therefore, the view taken by the AO was a\nplausible view. The revision proceedings were thus a mere change of opinion\nand not sustainable under law.\n7. The learned Departmental Representative (DR), on the other hand,\nsupported the revisionary order passed by the PCIT and submitted that the\nAO had allowed weighted deduction under section 35(2AB) of the Act\nwithout verifying the mandatory Form 3CL, and had allowed deduction\n@200% despite the amendment restricting the claim to 150% of expenditure\nfrom 01.04.2018. It was submitted that such failure renders the order\nerroneous and prejudicial to the interest of the revenue.\n8. We have carefully considered the rival submissions and perused the\nassessment order passed under section 143(3) of the Act, the impugned\nrevisionary order passed under section 263 of the Act, and the material placed\non record.\n8.
1. The primary ground on which the PCIT has invoked jurisdiction under\nsection 263 of the Act is that the deduction under section 35(2AB) of the Act,\nwas erroneously allowed by the AO at the rate of 200% without verifying\ncompliance with the amended statutory conditions, particularly the\nmandatory requirement of furnishing the report in Form 3CL issued by the\nprescribed authority, i.e., the Department of Scientific and Industrial\nResearch (DSIR). Further, the PCIT observed that the AO had not examined\nthe fact that post amendment by Finance Act, 2016 and Finance Act, 2018, the\n Metal Cast Industries Pvt.Ltd. vs. Pr.CIT\nAsst. Year: 2018-19\n5\nweighted deduction permissible under section 35(2AB) of the Act stood\nreduced to 150% of the eligible expenditure with effect from 01.04.2018.\n8.
2. From a perusal of paragraph 6.5 onwards of the revisionary order, it is\nevident that the PCIT has elaborately dealt with the statutory scheme\ngoverning deduction under section 35(2AB) of the Act, including the\nrequirements under Rule 6 and Rule 6(7A) of the Income Tax Rules, 1962. It\nhas been specifically noted that Form 3CL, which is required to be furnished\nelectronically by the DSIR, was not available on record either during the\nassessment proceedings or even during the revision proceedings. The PCIT\nhas concluded that the AO allowed the deduction mechanically, without\nverification of eligibility, thus rendering the assessment order unsustainable\nin law.\n8.
While the learned AR has argued that the AO had called for details and\nallowed the claim after due consideration, we find merit in the PCIT's\nobservation that the allowance of deduction was made without satisfying the\nstatutory mandate, particularly when submission of Form 3CL by the DSIR\nquantifying the eligible expenditure is a condition precedent for allowing\ndeduction under section 35(2AB) of the Act.\n8.
The assessee's reliance on the judgment of the Hon'ble Supreme Court\nin the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) is\nalso misplaced. The said decision holds that where two views are possible\nand the AO adopts one, the order cannot be revised merely because the PCIT\nholds a different opinion. However, the present case is not one of two possible\n Metal Cast Industries Pvt.Ltd. vs. Pr.CIT\nAsst. Year: 2018-19\n6\nviews, but rather a case of non-application of mind by the AO and failure to\nconduct requisite inquiry before allowing a substantial deduction.\n8.
The PCIT has rightly emphasized that there is no ambiguity in the law\npost amendment, and the provisions of section 35(2AB) of the Act read with\nRule 6 of IT Rules, 1962 clearly mandate the filing of Form 3CL and limit the\nweighted deduction to 150% of eligible expenditure incurred on in-house\nresearch and development from A.Y. 2018–19 onwards. The AO allowed the\ndeduction at 200% in clear contravention of the law, and without verifying\nwhether the basic condition of prescribed authority's quantification had been\nfulfilled.\n8.
In these circumstances, we are of the considered opinion that the twin\nconditions for invoking jurisdiction under section 263 of the Act-namely\nthat the assessment order is erroneous and prejudicial to the interests of the\nrevenue-stand duly satisfied.\n8.
Accordingly, the PCIT was justified in invoking revisionary powers\nunder section 263 of the Act and setting aside the assessment order with a\ndirection to the AO to frame a fresh assessment after conducting proper\nverification and affording reasonable opportunity to the assessee.\n8.
In view of the above discussion and findings, we hold that the order\npassed by the Ld. PCIT under section 263 of the Act is valid and sustainable\nin law.\n Metal Cast Industries Pvt.Ltd. vs. Pr.CIT\nAsst. Year: 2018-19\n7\n9. In the result, the appeal filed by the assessee lacks merit and is\naccordingly dismissed.\nOrder pronounced in the Open Court on 01st April, 2025 at Ahmedabad.\nSd/-\n(SUCHITRA KAMBLE)\nJUDICIAL MEMBER\nSd/-\n(MAKARAND V. MAHADEOKAR)\nACCOUNTANT MEMBER\nअहमदाबाद/Ahmedabad, दिनांक/Dated 01/04/2025\nटी.सी. नायर, व.नि. स. / T.C. NAIR, Sr. PS\nआदेश की प्रतिलिपि अग्रेषित/