2019 (9) TMI 633 - AT - Income Tax

Claim of weighted deduction @ 200% made us/ 35(2AB) - need for production of Form NO.3CL for allowing deduction u/s 35(2AB) - scope of amendment - HELD THAT - Whether furnishing of Form No.3CL is mandatory for allowing deduction u/s 35(2AB) of the Act came to be considered by the coordinate bench in the case of M/s Mahindra Electric Mobility Ltd., Vs. ACIT 2019 (1) TMI 20 - ITAT BANGALORE held that prior to 1/7/2016, Form No.3CL had no legal sanctity. It was further held that, only w.e.f 1/7/2016, in view of the amendment made to Rule 6(7A((b) of the Income-tax Act Rules, the quantification of weighted deduction allowable u/s 35(2AB) of the Act has to be based on From No.3CL and hence the said form has obtained significance. The year under consideration being asst. year 2014-15, the same would fall prior to 1/4/2016 and hence the tax authorities are not justified for insisting on production of Form NO.3CL for allowing deduction u/s 35(2AB) of the Act. Accordingly, we set aside the order passed by the ld CIT(A) and direct the AO to allow the deduction @ 200% of the expenditure incurred by the assessee, after examining the claim from the books of accounts - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of weighted deduction claim under Section 35(2AB) of the Income Tax Act.
2. Mandatory requirement of Form No. 3CL for allowing deduction under Section 35(2AB).

Issue-wise Detailed Analysis:

1. Rejection of Weighted Deduction Claim under Section 35(2AB) of the Income Tax Act:

The assessee, engaged in the production and sale of telemetry interface cards and data acquisition cards, claimed a weighted deduction of ?51.03 lakhs under Section 35(2AB) of the Income Tax Act for the assessment year 2013-14. This deduction was based on the expenditure incurred on research and development (R&D) activities, which were approved by the Department of Scientific and Industrial Research (DSIR). However, the Assessing Officer (AO) restricted the deduction to ?5.26 lakhs, based on the amount approved in Form No. 3CL issued by DSIR. Consequently, the AO disallowed the excess claim of ?45.77 lakhs. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this disallowance, leading the assessee to file an appeal.

2. Mandatory Requirement of Form No. 3CL for Allowing Deduction under Section 35(2AB):

The Tribunal examined whether the submission of Form No. 3CL was mandatory for allowing the deduction under Section 35(2AB) of the Act. It referred to the decision in the case of Mahindra Electric Mobility Ltd. vs. ACIT, where it was held that prior to 1st July 2016, Form No. 3CL had no legal sanctity. The amendment to Rule 6(7A)(b) of the Income Tax Rules, which came into effect from 1st July 2016, made the quantification of the weighted deduction based on Form No. 3CL mandatory. Before this amendment, the approval of the R&D facility by DSIR and the expenditure incurred were sufficient for claiming the deduction.

The Tribunal further referred to various judicial precedents, including decisions by the Pune ITAT in Cummins India Ltd. vs. DCIT and the Hyderabad ITAT in Sri Biotech Laboratories India Ltd. vs. ACIT, which supported the view that the deduction could not be denied merely due to the absence of Form No. 3CL if the R&D facility was approved.

In the present case, the Tribunal noted that the assessee's R&D facility was approved, and the expenditure was incurred within the approved period. The Tribunal concluded that for the assessment year 2014-15, which falls before 1st April 2016, the tax authorities were not justified in insisting on Form No. 3CL for allowing the deduction. Therefore, the Tribunal set aside the order of the CIT(A) and directed the AO to allow the deduction at 200% of the expenditure incurred by the assessee, after verifying the claim from the books of accounts.

Conclusion:

The Tribunal allowed the appeal of the assessee, directing the AO to grant the weighted deduction at 200% of the R&D expenditure, as claimed by the assessee, without insisting on Form No. 3CL for the period prior to the amendment effective from 1st July 2016. The judgment emphasized that the approval of the R&D facility and the actual expenditure incurred were the primary conditions for claiming the deduction under Section 35(2AB) of the Act before the specified amendment date.