2023 (10) TMI 191 - AT - Income Tax

Revision u/s 263 - as per CIT deduction allowed u/s 35(2AB) AO has allowed the claim without obtaining Form No. 3CL - HELD THAT - On a perusal of Rule 6(7A)(b) would show that the said rule prescribes certain condition, which inter alia, includes quantification of Expenditure eligible for deduction u/s 35(2AB) in Form 3CL. Even though it is not the responsibility of the assessee to furnish above said form, yet it is the requirement prescribed in Rule 6(7A), which should have been examined by the AO before allowing deduction u/s 35(2AB) of the Act. We noticed earlier that the assessing officer had asked the assessee through the notice issued u/s 142(1) of the Act about the break-up details of expenses only and did not mention about Form 3CL. Even though the above said form has to be furnished by the prescribed authority directly to the PCCIT/CCIT, yet it is the responsibility of the AO to verify as to whether the requirement of Rule 6(7A) has been satisfied or not, before allowing the claim u/s 35(2AB) of the Act. Admittedly, the AO has not examined the same. We notice that the provisions of sec. 35(2AB)(3) of the Act was amended with effect from 1.4.2016 by Finance Act, 2015, wherein it is stated that the assessee should fulfil such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. We notice Rule 6(7A) was amended w.e.f 1.7.2016, i.e., after the amendment made in Sec. 35(2AB)(3) of the Act. Further, Form 3CL is one of the forms prescribed in Rule 6(7A)(b) of the Rules for quantifying scientific research expenditure by the prescribed authority. Since the rules prescribe for examination of the above said form, it is the duty of the AO to verify the same before allowing the deduction u/s 35(2AB) - Admittedly, the AO has not examined this aspect, even though it is not a fault upon the assessee. We agree with the view taken by PCIT on this issue that the AO has not carried out due enquiries or verification with regard to this issue. Accordingly, we uphold the order passed by Ld PCIT on this issue. Deduction allowed u/s 35(1)(i) - As is the view of the Ld PCIT that the said deduction was allowed by the AO without obtaining mandatory Form 3CM and Form 3CL issued by DSIR. A.R drew our attention to the provisions of sec. 35 of the Act and submitted that the above said Form 3CM and 3CL are applicable to the deduction claimed u/s 35(2AB) of the Act only, i.e., the above said forms are not required for allowing deduction u/s 35(1)(i) of the Act. On a perusal of the relevant provisions, we find that the above said submissions of Ld A.R to be correct, meaning thereby, the Ld PCIT has misdirected himself on this issue. Accordingly, we set aside the order passed by Ld PCIT on this issue. Deduction allowed u/s 80G the view of CIT is that the said claim has been made by the assessee in respect of the expenses incurred on Corporate Social Responsibility (CSR), which is disallowable u/s 37(1) of the Act and hence deduction under section 80G should not have been allowed. Disallowance of CSR expenses are required to be made u/s 37(1) of the Act, but there is no statutory bar in claiming the deduction u/s 80G of the Act if the said expenses are otherwise allowable as deduction - see ALLEGIS SERVICES (INDIA) PVT. LTD. 2020 (5) TMI 378 - ITAT BANGALORE , M/S JMS MINING PVT. LTD. 2021 (7) TMI 907 - ITAT KOLKATA . Thus, the view taken by PCIT on this issue is a debatable one, meaning thereby, the action of the AO in allowing deduction u/s 80G results in a possible view. Accordingly, PCIT was not justified in initiating revision proceedings on this issue. Accordingly, we set aside his order on this issue. Appeal of the assessee is partly allowed.

Summary

Issues Involved:
The judgment involves challenging a revision order passed by the Principal Commissioner of Income Tax-1 (PCIT), Mumbai relating to the Assessment Year 2018-19. The issues revolve around deductions claimed under sections 35(2AB) and 35(1) of the Income Tax Act, as well as the deduction claimed under section 80G.

Deduction under Section 35(2AB) of the Act:
The PCIT found fault with the Assessing Officer for allowing the deduction under section 35(2AB) without obtaining Form No. 3CL, a necessary requirement. The PCIT held that the assessment order was erroneous and prejudicial to the interest of revenue, directing the AO to reframe the assessment order after conducting due inquiries. The Tribunal upheld the PCIT's decision, emphasizing the importance of verifying compliance with Rule 6(7A) before allowing such deductions.

Deduction under Section 35(1) of the Act:
The PCIT also questioned the deduction under section 35(1)(i) allowed by the AO without obtaining mandatory Form 3CM and Form 3CL issued by DSIR. However, upon review, the Tribunal found that these forms are applicable to deductions under section 35(2AB) only, not section 35(1)(i). Consequently, the Tribunal set aside the PCIT's order on this issue.

Deduction under Section 80G of the Act:
Regarding the deduction under section 80G claimed for expenses incurred on Corporate Social Responsibility (CSR), the PCIT contended that it was disallowable under section 37(1) of the Act, and hence, the deduction under section 80G should not have been allowed. The Tribunal disagreed with the PCIT, citing precedents that support the deductibility of CSR expenses under section 80G if otherwise allowable. As the issue was debatable, the Tribunal set aside the PCIT's decision on this matter.

Legal Principles and Conclusion:
The Tribunal applied legal principles established by the courts, emphasizing that the PCIT cannot invoke revision powers if the AO has conducted inquiries and taken a possible view. The Tribunal found that the AO had not properly examined the requirements before allowing deductions under section 35(2AB) of the Act. However, the Tribunal disagreed with the PCIT on the deductions under section 35(1)(i) and section 80G, deeming the AO's actions justifiable in those instances. Ultimately, the Tribunal partly allowed the appeal of the assessee, highlighting the importance of adherence to legal provisions and due diligence in tax assessments.