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2020 (1) TMI 1361 - AT - Income TaxCondonation of delay - delay of 539 days in filing this appeal - HELD THAT - The delay in filing of this appeal was on account of the then Finance Manager not following the issue with the Consultant. Later, the Finance Manager had resigned and the matter was left unattended. There are affidavits to the effect from both the earlier Manager and the present Manager of the assessee. The management came to know about the appeal not being filed on time when statutory audit for the financial year 2019-2020 was being prepared. Due to Covid-19 Pandemic, the process of filing the appeal took some more time from the end of the Chartered Accountant. Therefore, in the given facts and circumstances of the case, we are of the view that there is reasonable and sufficient cause in filing the appeal belatedly. Disallowance of deduction u/s 35(2AB) - AO disallowed the deduction on the ground that DSIR has not approved the expenditure in Form 3CL - CIT-A confirmed disallowance as stated that deduction u/s 35(2AB) of the I.T.Act. is not allowable to the extent of Research Development activity carried outside the in-house R D facility of the assessee - HELD THAT - In the present case since the deduction is with reference to assessment year 2016-2017 (where the law applicable is the 1st day of April, 2016), which is prior to the Income Tax (Tenth Amendment) Rules, 2016, with effect from 01.07.2016 of Rule 6(7A) of the I.T.Rules, deduction u/s 35(2AB) has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Admittedly, the Assessing Officer has not disputed the correctness of the claim of expenditure incurred on Scientific Research. The contention of the DR that the amendment to Rule 6(7A) is procedural cannot be accepted, since the amended rule stipulates a condition that apart from approval of in-house R D facility of assessee, the expenditure also has to be quantified by the prescribed authority for weighted deduction u/s 35(2AB). As amended Rule 6(7A) effect the substantive right of the assessee and cannot be termed merely as procedural. Moreover, the co-ordinate Bench of Bangalore Tribunal in case of M/s.Mahindra Electric Mobility Ltd. v. ACIT 2019 (1) TMI 20 - ITAT BANGALORE have clearly held that prior to 01.07.2016 Form 3CL has no legal sanctity and it is only w.e.f. 01.07.2016 with the amendment to Rule 6(7A) of the I.T.Rules, that the quantification of weighted deduction u/s 35(2AB) of the I.T.Act has significance. Therefore, we hold that the deduction u/s 35(2AB) of the I.T.Act be granted as claimed by the assessee instead of restricting it to the quantum of claim as mentioned in .Form No.3CL by the prescribed authority. - Decided in favour of assessee.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Disallowance of deduction under section 35(2AB) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The appeal was filed with a delay of 539 days. The assessee submitted affidavits from the former and current Finance Managers explaining that the delay occurred due to the former Finance Manager's resignation and the subsequent lack of follow-up. The delay was further exacerbated by the Covid-19 pandemic. The Tribunal found the reasons to be reasonable and sufficient, relying on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. ISRO Satellite Centre and the Hon'ble Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji & Others, which advocate for a liberal and practical approach in condoning delays. The Tribunal thus condoned the delay and proceeded to address the appeal on its merits. 2. Disallowance of Deduction under Section 35(2AB) of the Income Tax Act: The core issue was whether the CIT(A) was justified in confirming the disallowance of ?43,12,042 claimed as a deduction under section 35(2AB) of the Income Tax Act. The assessee, engaged in the business of herbal veterinary medicines, had claimed research and development expenses of ?3,17,63,251, but the DSIR approved only ?2,74,51,209 in Form No.3CL. Consequently, the Assessing Officer added back the difference of ?43,12,042 to the assessee's income. The CIT(A) upheld the Assessing Officer's decision, emphasizing that the DSIR's certification in Form 3CL is crucial for claiming deductions under section 35(2AB). The CIT(A) rejected the assessee's argument that all R&D expenses should be allowed once the facility is approved by the DSIR, stating that the DSIR's certification is essential for the authenticity of the R&D claims. Upon appeal, the Tribunal noted that the DSIR is empowered to approve only the R&D facility, not the expenditure. The Tribunal referenced section 35(2AB)(1) and various judicial precedents, including the Bangalore Bench of the Tribunal in the cases of M/s. Mahindra Electric Mobility Ltd. v. ACIT and M/s. Indfrag Limited v. ACIT, which held that prior to the amendment on 01.07.2016, Form No.3CL had no legal sanctity. The Tribunal concluded that for the assessment year 2016-2017, the deduction should be allowed based on the expenditure recorded in the books of account, as the law applicable was before the amendment. The Tribunal found that the Assessing Officer had not disputed the correctness of the claimed expenditure. Therefore, the Tribunal directed that the deduction under section 35(2AB) be granted as claimed by the assessee, instead of being restricted to the amount mentioned in Form No.3CL by the DSIR. Conclusion: The appeal filed by the assessee was allowed. The Tribunal condoned the delay in filing the appeal and directed that the deduction under section 35(2AB) be granted as claimed by the assessee.
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