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2017 (9) TMI 958 - AT - Income TaxRevision u/s 263 - AO allowing deduction to the assessee u/s 35(2AB) was erroneous and prejudicial to the interest of the revenue - time limit within which application for approval in form No.3CM has to be made - Held that - It is undisputed that Department of Scientific and Industrial Research (DSIR) granted recognition to the Assessee for the period from April 1st, 2010 to 31st March, 2019. Deduction Sec.35(2AB) read with rule 6 does not prescribe any time limit within which application for approval in form No.3CM has to be made. Once approval is granted by DSIR the same would apply till it is revoked. In the case of Claris Lifesciences Ltd. 2008 (8) TMI 579 - Gujarat High Court and Sadan Vikas (India) Ltd. 2011 (2) TMI 66 - DELHI HIGH COURT have taken the view that on a plain and harmonious reading of rule 6(5A) and Form No. 3CM it would be appropriate to come to a conclusion once a research facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). In the light of above it cannot be said that the order of the AO was erroneous. Even if it were to be said that the view taken by the Courts and Tribunal are not correct, the said views were a possible view. Once the view taken by the AO is either correct or a possible view then the CIT in exercise of his powers u/s.263 of the Act cannot hold the order of the AO to be erroneous just because he does not agree with the view of the AO. Appeal of the Assessee is allowed.
Issues Involved:
1. Whether the absence of Form 3CM can invalidate the deduction claimed under Section 35(2AB) of the Income Tax Act, 1961. 2. Whether the Principal Commissioner of Income Tax (CIT) was justified in invoking Section 263 of the Income Tax Act to revise the assessment order. Detailed Analysis: 1. Absence of Form 3CM and Deduction under Section 35(2AB): The Assessee, a company engaged in the manufacture of wagons, claimed a deduction under Section 35(2AB) of the Income Tax Act for expenditures on scientific research and in-house research and development (R&D) facilities. The deduction was supported by a certificate of registration from the Department of Scientific and Industrial Research (DSIR) dated 14.07.2010. The Assessing Officer (AO) allowed the deduction based on this certificate. The CIT, however, issued a show-cause notice under Section 263, arguing that the deduction was erroneous because the Assessee failed to submit Form 3CM as required under Rule 6(5A) of the Income Tax Rules. The Assessee responded by providing Certificates of Recognition for various periods and explaining that Form 3CM was applied for the first time in Financial Year (FY) 2015-16 and was pending for earlier years, including Assessment Year (AY) 2012-13. The Assessee contended that the information required by Form 3CM was already available in the DSIR certificate. The Tribunal referred to judicial precedents, including CIT vs. Sadan Vikas (India) Ltd. and CIT vs. Claris Lifesciences Ltd., which held that the cut-off date in the DSIR certificate is irrelevant and that the key consideration is whether the Assessee incurred R&D expenditures and obtained DSIR certification. The Tribunal concluded that the absence of Form 3CM should not invalidate the deduction, as the Assessee met the substantive requirements of Section 35(2AB). 2. Invocation of Section 263 by CIT: The CIT invoked Section 263 to revise the AO's order, arguing that the absence of Form 3CM made the order erroneous and prejudicial to the interests of the revenue. The Assessee argued that the AO's decision was based on a reasonable interpretation of the law and supported by judicial precedents. The Assessee also highlighted that the CIT's action was purely based on a technicality and that the substantive conditions for the deduction were met. The Tribunal noted that the AO's view was consistent with judicial pronouncements and that the CIT cannot invoke Section 263 merely because he disagrees with the AO's interpretation. The Tribunal emphasized that an order can only be revised under Section 263 if it is both erroneous and prejudicial to the interests of the revenue. In this case, the Tribunal found that the AO's order was neither erroneous nor prejudicial, as it was based on a possible and reasonable interpretation of the law. Conclusion: The Tribunal held that the CIT was not justified in invoking Section 263 and setting aside the AO's order. The Tribunal quashed the CIT's order and allowed the Assessee's appeal, affirming that the deduction under Section 35(2AB) was valid despite the absence of Form 3CM. The Tribunal's decision was based on the principle that substantive compliance with the law should not be invalidated by procedural technicalities, especially when supported by judicial precedents. The appeal of the Assessee was allowed, and the order was pronounced in court on 13.09.2017.
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