2023 (6) TMI 604 - AT - Income Tax

Deduction u/s 35(2AB) - in absence of Form 3CL issued by the competent authority, assessee s claim of deduction denied - HELD THAT - Perusal of Form 3CL, it was issued by the competent authority on 31st March, 2022, which is post completion of assessment but before order was passed by the first appellate authority. As could be seen from the perusal of Form 3CL, it was issued by the competent authority on 31st March, 2022, which is post completion of assessment but before order was passed by the first appellate authority. Surprisingly, while deciding the appeal, the first appellate authority has completely ignored Form 3CL issued by the competent authority, though, it was placed on record. When the competent authority has issued Form 3CL entitling the assessee to claim deduction in respect of both capital and revenue expenditure, which is a mandate u/s 35(2AB) of the Act, the departmental authorities cannot disentitle the assessee from availing the deduction by ignoring Form 3CL - Assessee appeal allowed.

Summary

Issues:
The appeal against the order passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2018-19. The dispute revolves around the disallowance of Rs. 29,05,724/- claimed as deduction under section 35(2AB) of the Income-tax Act, 1961.

Details of the Judgment:

1. Background: The appellant, a resident corporate entity engaged in manufacturing and sale of inks and toners for photocopiers, filed its return of income claiming deduction under section 35(2AB) for research and development expenditure. The Assessing Officer disallowed the deduction due to the absence of Form 3CL issued by the competent authority.

2. Appellant's Submission: The appellant, through its counsel, argued that although Form 3CL was not furnished before the Assessing Officer, it was provided during the proceedings before the first appellate authority for assessment years 2018-19, 2019-20, and 2020-21. The Form was disregarded by the first appellate authority, leading to the disallowance of the deduction.

3. Departmental Representative's Stand: The Departmental Representative supported the observations of the Assessing Officer and the Commissioner (Appeals).

4. Tribunal's Decision: The Tribunal noted that the appellant had submitted Form 3CLA and Form 3CK during the assessment proceedings, along with Form 3CL for the previous assessment year. The disallowance was solely based on the absence of Form 3CL for the relevant year. However, the genuineness of the claimed expenditure was not in question, as the revenue expenditure related to research and development was allowed in full. The Tribunal emphasized that the Form 3CL issued by the competent authority post-assessment but before the first appellate authority's order was crucial. Ignoring this form was deemed unacceptable, as it entitled the appellant to claim deductions as per section 35(2AB) for both capital and revenue expenditure. Consequently, the disallowance of Rs. 29,05,724/- was deemed unsustainable, and the Tribunal allowed the appeal, deleting the disallowance.

5. Conclusion: The Tribunal allowed the appeal, emphasizing the importance of Form 3CL issued by the competent authority, which was crucial for the appellant to claim deductions under section 35(2AB) for both capital and revenue expenditure. The disallowance was overturned, and the appellant's grounds were upheld.