Competent Authority Approval in Form No. 3CM requires for claiming Deduction on R & D Expenditure u/s 35(2AB) of Income Tax Act: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has ruled that in order to claim deduction on Research and Development ( R&D ) expenditure under Section 35(2AB) of the Income Tax Act, approval of the competent authority in Form No. 3 CM is required. Thus, the case of the Piramal Enterprises was restored back to the Assessing Officer ( AO ).

In the case at hand, the AO noted that while approval had been granted by the Ministry of Science and Technology for the R&D unit in Chennai, no Form No. 3 CM had been submitted as per statutory requirements. Consequently, the AO correctly concluded that only R&D expenditure incurred at the Ennore facility after the Ministry's approval on February 23, 2005, and supported by Form No. 3 CM, could be considered for deduction.

Furthermore, the absence of a breakdown of expenditure for the Ennore facility between February 23, 2005, and March 31, 2005, led to the AO's decision to disallow the deduction, a decision upheld by the tribunal.

The assessee, Piramal Enterprises Limited failed bring on record approval in prescribed Form No. 3 CM, both before the AO and the Commissioner of Income Tax (Appeals) [CIT(A)]. It was established that only R&D expenditure at the Ennore facility, approved by the Ministry on March 29, 2005, could be eligible for deduction upon submission of Form No. 3 CM.

During proceedings, Mr. Priyank Gala, representing the assessee, argued that despite filing Form 3CL with the Department of Scientific and Industrial Research ( DSIR ), they had not received Form 3CL. They emphasized that reminders filed by the assessee were also unavailable due to outdated records. Mr. Gala pressed for deduction under Section 35(2AB) from the date of application, June 25, 2004.

However, it was observed that there was no approval in Form No. 3 CM from the competent authority regarding the R&D facility expenditure, a requirement under Section 35(2AB) of the Income Tax Act.

The tribunal noted the contention of the assessee regarding their application for approval in Form No. 3 CM still pending. Citing precedent, the tribunal emphasized the mandatory nature of Form No. 3 CM approval for claiming deductions under Section 35(2AB) of the Act, as established in the Mumbai Bench's decision in the case of PCP Chemicals Pvt. Ltd.

In light of these considerations, the two-member bench of the tribunal, comprising S. Rifaur Rahman ( Accountant Member ) and Kuldip Singh ( Judicial Member ), decided to remand the issue to the Assessing Officer. This would provide the assessee with an opportunity to furnish the requisite approval from the competent authority in the prescribed manner for claiming the deduction under Section 35(2AB) of the Act.

To Read the full text of the Order CLICK HERE

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