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2025 (4) TMI 159 - AT - Income TaxRevision u/s 263 - as per CIT deduction u/s 35(2AB) was allowed without verifying whether the assessee submitted Form 3CL from the prescribed authority and at the rate of 200% whereas the applicable rate as per the amended provision was 150% from 01.04.2018 - HELD THAT - PCIT has elaborately dealt with the statutory scheme governing deduction under section 35(2AB) of the Act including the requirements under Rule 6 and Rule 6(7A) of the Income Tax Rules 1962. It has been specifically noted that Form 3CL which is required to be furnished electronically by the DSIR was not available on record either during the assessment proceedings or even during the revision proceedings PCIT has rightly emphasized that there is no ambiguity in the law post amendment and the provisions of section 35(2AB) of the Act read with Rule 6 of IT Rules 1962 clearly mandate the filing of Form 3CL and limit the weighted deduction to 150% of eligible expenditure incurred on in-house research and development from A.Y. 2018 19 onwards. AO allowed the deduction at 200% in clear contravention of the law and without verifying whether the basic condition of prescribed authority s quantification had been fulfilled. Thus the twin conditions for invoking jurisdiction under section 263 of the Act namely that the assessment order is erroneous and prejudicial to the interests of the revenue stand duly satisfied. PCIT was justified in invoking revisionary powers u/s 263 of the Act and setting aside the assessment order with a direction to the AO to frame a fresh assessment after conducting proper verification and affording reasonable opportunity to the assessee. Decided against assessee.
ISSUES PRESENTED and CONSIDERED
The primary issue considered in this judgment was whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking jurisdiction under section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the Assessing Officer (AO) for the Assessment Year 2018-19. Specifically, the core legal questions included:
ISSUE-WISE DETAILED ANALYSIS 1. Relevant legal framework and precedents The legal framework revolves around section 35(2AB) of the Income Tax Act, which provides for weighted deductions on in-house research and development expenditures. The Finance Act, 2016, and Finance Act, 2018, amended the deduction rate from 200% to 150% effective from 01.04.2018. Compliance with Rule 6 and Rule 6(7A) of the Income Tax Rules, 1962, including the submission of Form 3CL by the Department of Scientific and Industrial Research (DSIR), is mandatory for claiming this deduction. The precedent set by the Supreme Court in Malabar Industrial Co. Ltd. v. CIT was referenced, which holds that an order cannot be revised merely due to differing opinions if two views are possible. 2. Court's interpretation and reasoning The Tribunal interpreted that the AO's failure to verify the statutory conditions, particularly the submission of Form 3CL and the adherence to the amended deduction rate, rendered the assessment order erroneous and prejudicial to the revenue. The Tribunal emphasized that the statutory mandate was clear and unambiguous post amendment, and the AO's oversight constituted non-application of mind. 3. Key evidence and findings The PCIT's revisionary order highlighted the absence of Form 3CL in the assessment records, which is crucial for quantifying eligible expenditure for deduction. The Tribunal found that the AO allowed the deduction mechanically without verifying this essential compliance. 4. Application of law to facts The Tribunal applied the statutory requirements under section 35(2AB) and the amendments to the facts, concluding that the AO's allowance of a 200% deduction was contrary to the law, which limited it to 150% from A.Y. 2018-19. The failure to ensure compliance with the requirement of Form 3CL further substantiated the PCIT's decision to revise the order. 5. Treatment of competing arguments The assessee argued that the AO's decision was a plausible view and that the revision was a mere change of opinion. However, the Tribunal dismissed this argument, distinguishing the case from a scenario involving two possible views. Instead, it identified a lack of due inquiry and statutory compliance by the AO. 6. Conclusions The Tribunal concluded that the PCIT was justified in invoking section 263, as the assessment order was both erroneous and prejudicial to the revenue. The direction for a fresh assessment was warranted to ensure proper verification and compliance with statutory requirements. SIGNIFICANT HOLDINGS The Tribunal upheld the PCIT's order under section 263, affirming that:
In summary, the Tribunal's decision underscores the importance of adherence to statutory mandates and the necessity for thorough verification by assessing officers to prevent erroneous and prejudicial assessments. The judgment reinforces the supervisory role of the PCIT in ensuring compliance and protecting revenue interests.
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